Donald Trump's revealed trade strategy looks bad news for the UK

17th April 2025

One of those choices is how to react to the tariffs, given that they seem to be aimed at inconsistent goals. Jill Rutter at The Institute for Government argues the UK may have to pay quite a high price for any deal - and not get that much out of it.

One of the problems in knowing how to react to the Trump tariffs is that they seem to be aimed at inconsistent goals. The events of the last week do suggest a way of differentiating between his tariffs - but it is bad news for the UK, argues Jill Rutter

To some Trump looks like a madman - or at least is prepared to test the madman theory of negotiating to destruction - constrained only when the bond markets or Wall Street take real fright. To others, the chopping and changing of policy is a narcissistic power game, because Trump always wants to be the centre of attention and likes nothing more than asking countries to come and grovel for concessions. Or his strategy may be the product of AI mangling some rather tendentious economic theory, or the outcome of a battle between warring big beasts prowling the White House - ultimately the result of who has talked to the president last.

Undoubtedly, elements of these theories feature in most of the decisions to date. But, gradually, Trump's revealed preferences are becoming clearer.

Trump is using tariffs for different purposes
It is possible to discern (at least) five different objectives behind Trump's tariffs:

Instrumental tariffs
These are designed to achieve a policy objective unrelated to trade policy. This was the rationale behind Trump's first use of tariffs - to persuade Colombia to accept a deportation flight, and was also the first outing for tariffs on Mexico and Canada - to get them to clamp down on illegal migration and cross-border supply of fentanyl. The characteristic of these tariffs is they are turned on quickly, levied at a level to induce policy action, and then turned off.

Geostrategic country specific tariffs
There are three countries singled out for repeated action by Trump: China, Canada and Mexico. These are the countries where the US is really fussed about bilateral trade - in the case of China because of the massive trade imbalance together with a long list of complaints, including stolen intellectual property. But at root this reflects a big geopolitical battle between the two 21st century superpowers; winning the rivalry with China is the big prize here. The issues with Canada and Mexico are a bit different and largely related to the impacts of free trade between those two countries and the US (though Canada certainly sees a wider objective of undermining Canadian sovereignty with Trump's repeated jibes about Canada becoming the "51st state"). It is notable that these three countries were singled out for early action before 'Liberation Day' and did not see their tariffs 'paused' on 9 April. China and Canada have chosen to go the retaliation route.

Sectoral tariffs
These are the tariffs, now in force, on specific goods imported into the US - steel, aluminium and automotive imports. These were not paused - and seemed aimed to rebuild US manufacturing in these areas by persuading companies to reshore/onshore production. It is rumoured there are more sectors to come – most notably pharmaceuticals if/when the president can find a way of levying them without impacting the health of Americans.

Reciprocal tariffs
These are the formulaic tariffs announced on 2 April on any country with a significant goods trade surplus with the US, which then (with the exception of China) were paused on 9 April. Here the Trump administration does seem to be in the market for "deals" – seeking improved US access in return for modifying these tariffs. Whether such adjustments materialise we wait to see.

Baseline tariffs
This is the 10% tariff applied across the board even on countries, like the UK, that have deficits with the US. This is still in force and seems essentially to be a revenue raiser for the US. That means it looks as though it is probably here to stay.

A Podcast 40 Minutes
Trump's tariff turnaround
As Donald Trump pauses his trade war – well, except in the case of China – the podcast team are joined by economist and author Duncan Weldon to make sense of the president's wild economic rollercoaster ride – and the uncomfortable choices it means for Keir Starmer.

Source
https://www.instituteforgovernment.org.uk/comment/donald-trump-trade-strategy-bad-news-uk