The UK’s already sluggish economic growth could be slashed by more than half if Donald Trump follows through with his proposed sweeping import tariffs.
In its latest report, the National Institute of Economic and Social Research (NIESR) painted a grim outlook for the UK economy over the coming years — even without Trump’s tariff plans. According to NIESR, growth is expected to remain lacklustre, with just 1.4% growth in 2026 and 1.7% in 2030, after an even slower 1.2% growth next year.
Trump, during his campaign to be re-elected as US president, pledged to bring manufacturing jobs back to the US and implement across-the-board tariffs of 10-20% on imports, alongside a threat of imposing a 60% levy on all goods from China.
However, if these tariffs come into play, the UK — particularly sensitive to shifts in global trade flows — could see its economic growth drop to a meagre 0.4% in 2025, according to Ahmet Kaya, principal economist at NIESR.
The ripple effect of these proposed tariffs would also be felt globally, Kaya warned. “Relative stability is under serious threat by the potential raising of import tariffs in the United States,” he said during a presentation of NIESR’s latest forecasts.
The tariffs, which would also target European imports, could have a major impact on sectors like automotive and chemicals, which rely heavily on US exports. According to the European Commission, the European Union exported €502.3bn (£418bn) in goods to the US in 2023, accounting for 20% of all non-EU exports.
European Commission president Ursula von der Leyen, however, remained optimistic, calling for continued transatlantic cooperation.
“Let us work together on a transatlantic partnership that continues to deliver for our citizens. Millions of jobs and billions in trade and investment on each side of the Atlantic depend on the dynamism and stability of our economic relationship,” she said in a message congratulating Trump on his win.
Trump himself has repeatedly referred to tariffs as “the most beautiful word in the world,” believing they would boost US manufacturing, job creation, and incomes, while generating trillions of dollars in federal revenue over the next decade.
However, global commodity markets are already reacting to the prospect of a Trump victory, with fears of a “tit-for-tat” trade war intensifying. Commodity traders began pricing in the likelihood of a Trump win overnight, leading to a significant slump in industrial metals and commodities.
“A Trump 2.0 scenario is becoming increasingly likely,” said Ole Hansen, head of commodity trading at Saxo. He added that the possibility of strained trade relations has spurred concerns about future demand, particularly in metals markets, where prices have reacted strongly to rising uncertainty.
Andrzej Szczepaniak, an analyst at Nomura, warned that a Trump victory “will adversely affect growth in Europe,” as the European Commission is “expected to retaliate like-for-like” with its own tariffs. This, he cautioned, “could mean higher inflation in the euro area.”
Trump’s victory could spark a trade war that would “push the eurozone economy from sluggish growth into a full-blown recession”.
“Even though tariffs might not impact Europe until late 2025, the renewed uncertainty and trade war fears could drive the Eurozone economy into recession at the turn of the year,” said James Knightley, economist at the bank ING.
Szczepaniak also suggested that the European Central Bank (ECB) would likely adopt a “very cautious” stance, opting to refrain from a larger interest rate cut of more than half a percentage point in December.
Bas Kooijman, chief executive of DHF Capital, said: “The uncertainty surrounding trade policies and geopolitical tensions under Trump contributed to fears of disruptions in European trade.”
Hansen also pointed out that commodities had been pressured by the rising strength of the US dollar, which makes dollar-denominated trades more expensive globally. Oil prices dropped almost 1.5% overnight to below $74.50 a barrel, reflecting concerns that a global trade war could further dampen demand for energy.
“Crude oil has also moved lower, pressured by the possibility that a tit-for-tat global trade war could dampen demand and add strain to an already weak market outlook projected for 2025,” Hansen said.
“This anticipated decline in demand for oil and related products stems from concerns that an increase in tariffs may slow global economic growth, thereby lowering demand for energy.”
Meanwhile, the chair of the British Foreign Affairs Committee, Emily Thornberry, warned of the “chilling effect” a Trump presidency could have on trade between the UK, the EU, and the US.
“America is the country that we trade with the most after the European Union,” Thornberry told the BBC. “So the threat of introducing pretty massive tariffs on imported goods — 20% on European goods, 60% or even 200% on Chinese products — will obviously have a big effect on the American economy, but will also have a chilling effect on the British economy, because it is one of our biggest trading partners.”
During the campaign, Trump criticised the EU as an unsatisfactory trading partner for the US, accusing it of being unbalanced. “They don’t take our cars, they don’t take our farm products, don’t take anything. You have a $312bn deficit with the EU. You know, the EU is a mini — but not so mini — is a mini China,” he said.
Ireland, which is home to the European headquarters of many multinational tech and pharmaceutical companies, is also nervous about the potential fallout. Trump’s promise to repatriate US companies through a new tax regime could hit Ireland particularly hard, given that US multinationals like Microsoft (MSFT), Apple (AAPL), and Pfizer (PFE) account for 50% of Ireland’s corporate tax revenue.
The cost of borrowing for the UK government has risen after Trump’s victory raised concerns about higher inflation in the years ahead.
Philip Shaw, chief economist at Investec, sounded a bit more optimistic: “It’s extremely early days to be drawing conclusions about what a Trump presidency and potential clean sweep might mean for the US and global economy and financial markets.
“Certainly, higher tariffs would involve greater inflation and less world trade growth.
“With stocks, one of the primary drivers is Trump’s promise to reduce corporate taxes for companies that make goods in America.
“And obviously, we’ve seen a bit increase in US stock futures and that’s carried through to European markets as well.”
Barclays (BARC.L) said any decision on tariffs would require a new government and cabinet in a process that could take upwards of six months and was not an immediate risk.
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