Donald Trump’s tariffs: what’s happening and what could it mean for the UK?

US President Donald Trump has announced plans to introduce new “reciprocal tariffs” for countries with the stated aim of “restoring fairness in US trade relationships”. 

His Presidential Memorandum setting out the plans, published on 13 February, comes days after the announcement of 25% tariffs on all steel and aluminium imports to the United States and the introduction earlier this month of a 10% tariff on all goods imported to the US from China. 

Tariffs of 25% on goods from Mexico and Canada had also been expected but they were suspended for 30 days following eleventh-hour negotiations with the two nations. 

While President Trump’s new tariffs were initially expected to have only limited impact on the UK, the steel and aluminium tariffs announcement has prompted concern among British steelmakers and there are also fears that the introduction of ‘reciprocal tariffs’ could raise costs not just in the UK but across the world. 

This explainer looks at what tariffs are, why they are being introduced in the US and the potential consequences for the UK. It was last updated at 4pm on Tuesday 18 February and the information below is correct as of then.

With developments unfolding rapidly, we’ll continue to update this article as new information becomes available. If you’ve seen something we should add, spotted a claim for us to fact check or have a question you’d like us to answer, please let us know here.

What are tariffs?

Import tariffs are a form of taxes charged on goods imported from other countries. 

They can be levied in various different ways, such as by the number, weight or volume of items, but the tariffs announced by Mr Trump so far are ad valorem tariffs, meaning the amount due is calculated as a percentage of the value of the product.

A 10% tariff means an item costing $10 would attract an additional charge of $1. 

In addition to being the world’s largest economy, the US is also the leading global importer, pulling in $3.2 trillion worth of goods in 2023. So increasing the cost of selling to the US has the potential to significantly impact the global economy.

Why has President Trump introduced tariffs?

Raising tariffs can be a way of protecting domestic industries, as they make it more expensive to purchase goods manufactured abroad. This prevents local manufacturers from being undercut by imports.

For example, last year the EU imposed duties of between 17% and 35.3% on Chinese-manufactured electric vehicles, amid concerns that European car manufacturers were unable to compete with what the EU described as “unfair” subsidies available to their Chinese counterparts. 

This isn’t just about trade though. The White House has also described the introduction of tariffs as “using our leverage to ensure Americans’ safety”—Mr Trump initially said they were being introduced to encourage Canada and Mexico to reduce illegal immigration over the US border, and to encourage China to clamp down on the flow of precursor drugs used to manufacture fentanyl. 

President Trump had planned to introduce a 25% duty on imports from Mexico and most imports from Canada, with Canadian oil hit by a lower 10% levy. Chinese goods face a 10% tariff. 

All three countries had threatened to retaliate by imposing tariffs of their own on imports from the US, but the suspension means Mexico and Canada have not gone ahead with this. China’s finance ministry has announced retaliatory tariffs of between 10% and 15% for US oil, gas and coal, as well as farm equipment and some cars, which came into effect on 10 February. 

Who pays tariffs?

Donald Trump has repeatedly suggested that tariffs are paid by foreign countries. During his inauguration speech, for example, he said: “Instead of taxing our citizens to enrich other countries, we will tariff and tax foreign countries to enrich our citizens.”

It is actually companies importing the goods into the US that pay the levy though, and the question of where the burden of the tariffs ultimately falls is uncertain. 

The companies importing goods may choose to pass the additional costs on to consumers in the form of higher prices. They may choose to absorb the costs themselves, and take lower profits. Or alternatively, it’s possible that foreign manufacturers exporting goods to the US could lower their prices, which would likely impact their profits. 

According to Peter Levell, deputy research director at the Institute for Fiscal Studies (IFS), the evidence from tariff increases under the last Trump administration was that the cost was “almost entirely passed on to domestic consumers”.

Speaking in a video interview for the IFS website, he said: “It wasn’t a reduction in the prices that foreigners were charging to enter the US market—it was an increase, almost one for one with the tariff rate, for domestic consumers.”

Tariffs are collected by the customs authority of the country where the goods are being imported into. In the US, they’re paid to the Customs and Border Protection agency at ports of entry across the country, although Mr Trump has suggested he may create an External Revenue Service to collect tariffs. In the UK, tariffs are collected by HM Revenue & Customs.

Where else might be targeted?

Although Mr Trump appears to be using tariffs as political leverage to some effect—both Mexico and Canada have agreed to improve border security in exchange for their 30-day reprieve—the president also has an eye on the US economy.

He is eager to address the US trade deficit, which is what occurs when you import more goods from another country than you export in return. The US has substantial trade deficits in goods and services with China and Mexico, and a smaller one with Canada. 

He also appears to be looking at the trade deficit between the US and EU, which was $131 billion in 2022 in the EU’s favour. He has warned tariffs could be imposed on EU imports “pretty soon”, saying: “They don’t take our cars, they don’t take our farm products. They take almost nothing, and we take everything from them. Millions of cars, tremendous amounts of food and farm products.”

President Trump’s latest announcement about “reciprocal tariffs” appears to have a wider aim than measures targeting specific countries or products, stating that it seeks to “correct longstanding imbalances in international trade and ensure fairness across the board”. 

A fact sheet published by the White House highlights, for example, that the EU currently imposes a 10% tariff on US cars imported into the bloc, whereas EU cars imported to the US are subjected to a smaller tariff of 2.5%. It says such discrepancies are one source of the US’s trade deficit in goods.

A ‘reciprocal tariff’ means the US would ensure the charge was the same in both directions. In the case of EU-manufactured cars, the tariff on imports might therefore be raised to 10%.

How might US tariffs affect the UK?

Most British exports to the US are in the form of services, such as finance, insurance and consulting, rather than goods. In 2023, the UK imported £57.4 billion of services from the United States (19.5% of all services imports) and exported £126.3 billion of services (27.0% of all services exports).

That same year the UK imported £57.9 billion of goods from the US, which accounted for 10% of all goods imports, making the US our second largest import partner, behind only Germany. There were £60.4 billion of goods exports to the US, making it our largest export partner, accounting for 15.3% of all goods exports.

The question of whether the UK overall has a trade surplus with the US is a complicated one, because of different sets of data.

The Office for National Statistics (ONS) reports that the UK ran a trade surplus with the US of £71.4 billion in goods and services in 2023. However, according to US figures, the trade surplus was actually in the other direction, with the US reportedly running an overall trade surplus with the UK of $14.5 billion. 

The figures differ in part because while the US Bureau of Economic Analysis includes trade with Jersey, Guernsey and the Isle of Man in the UK data, the ONS does not. This allows both countries to report a trade surplus with each other, which means the UK government can use the US figures to argue that no tariffs should be imposed. 

Both countries are aware of the discrepancy and are said to be working to harmonise their calculations. 

Prior to his announcement about tariffs on steel and aluminium, Mr Trump had suggested that the UK might not be subject to US tariffs, telling the BBC early in February: “The UK is way out of line but I’m sure that one… I think that one can be worked out.”

However, this position has now been complicated by the news about steel and aluminium tariffs, and by proposals to treat VAT (value added tax) as a form of tariff. In his recent post on X (formerly Twitter) about ‘reciprocal tariffs’, President Trump said: “For purposes of this United States Policy, we will consider Countries that use the VAT System, which is far more punitive than a Tariff, to be similar to that of a Tariff.”

This is not a universal view. Tariffs are usually regarded as taxes on imports while VAT is a tax on domestic consumption, regardless of where the goods or services are produced. 

The economist Julian Jessop, a fellow at the free market think tank the Institute of Economic Affairs, said: “VAT is not a tariff as it does not discriminate between imports and domestic goods.”

If the US’s ‘reciprocal tariffs’ are calculated with VAT, which is currently charged at a standard rate of 20% in the UK, factored in, it will be hard for the UK—or any other country which charges VAT—to avoid a negative impact to the economy. 

William Bain, head of trade policy at the British Chambers of Commerce, said: “These new proposals for reciprocal and differential tariffs will create more cost and uncertainty for investors, businesses and consumers across the world. 

“Plans to factor in countries’ VAT regimes could lead to especially complex and costly tariff scenarios which upend established trade norms.”

Any new reciprocal tariffs will not come into effect immediately, with the US president ordering his advisers to carry out investigations into other countries’ trade practices and report back within 180 days.

How will the steel and aluminium tariffs impact the UK?

In May 2018, during his first term as president, Donald Trump introduced 25% tariffs for steel and aluminium imports. At the time the move was described by trade body UK Steel as a “hammer blow”. 

In March 2022, under President Joe Biden’s administration, the 25% tariff was replaced by a new arrangement which allowed UK companies to export up to 500,000 tonnes of steel and 21,600 tonnes of aluminium to the US tariff-free. 

The UK reportedly exported 166,433 tonnes of steel to the US in 2023, the last full year for which figures are available, and between January 2024 and November 2024 some 162,716 tonnes were sent to the US—we don't yet have data for December 2024.

In his latest announcement President Trump has made it clear that all previous exclusions and exceptions will no longer apply and that all steel entering the US will have a tariff imposed. The order comes into force on 12 March. 

Responding to the news, UK Steel director general Gareth Stace said: “President Trump has taken a sledgehammer to free trade with huge ramifications for the steel sector in the UK and across the world. This will not only hinder UK exports to the US, but it will also have hugely distortive effects on international trade flows, adding further import pressure to our own market.”

Mr Stace has previously warned that returning to the 25% tariff threatens more than £400 million worth of exports.

Countries around the world are threatening to introduce retaliatory tariffs in response to the changes to steel and aluminium imports, but the UK government has yet to take any such action. 

At Prime Minister’s Questions on 12 February, the Prime Minister Sir Keir Starmer was asked by Liberal Democrat leader Sir Ed Davey whether retaliatory tariffs would be introduced. Mr Starmer replied: “It needs a level-headed assessment of the implications which is what we’re going through at the moment.”