Global markets experienced fresh volatility this week as US President Donald Trump confirmed his plan to impose tariffs on major trading partners.
While Mexico and Canada secured a temporary 30-day reprieve after agreeing to crack down on fentanyl smuggling, China was hit with a 10% tariff.
Beijing retaliated swiftly, imposing duties of up to 15% on American goods.
Europe is also bracing for potential tariffs, with Trump stating that levies on the EU “will definitely happen.”
However, he hinted at a possible deal with the UK, describing trade relations with Britain as more balanced than with the EU.
“The UK is out of line. But I’m sure that one, I think, that one can be worked out,” Trump told reporters, adding that he was “getting along very well” with Prime Minister Keir Starmer.
Could Trump’s tariffs boost the struggling UK economy?
The UK economy has been struggling, with Finance Minister Rachel Reeves stating last month that she was “fighting every single day to kick start” growth.
However, according to a CNBC report, some analysts believe Trump’s tariffs could provide a much-needed boost.
If Britain avoids US tariffs while the EU faces restrictions, the country could attract more investment and trade opportunities.
The US is the UK’s largest trading partner, accounting for over 17% of total trade in the year leading up to September 2024.
Unlike other major economies facing large trade imbalances with the US, Britain’s trade relationship with America is almost evenly matched—something Trump sees as fairer than Washington’s deficit with the EU.
A shielded services economy
Despite concerns over tariffs, the impact on the UK economy could be limited.
Irina Surdu-Nardella, a professor of international business at Warwick Business School, told CNBC that Britain’s reliance on services rather than goods shields it from trade war disruptions.
“In reality, the effects on the UK market would be relatively limited to industries such as fishing and mining,” she explained.
“The service-focused nature of the UK economy shields it significantly from the consequences of tariffs.
Tariffs are particularly detrimental to industries with complex supply chains, where goods cross the border multiple times as firms seek to turn inputs into final goods.
Again, this is not the case for the UK market, which mainly exports banking and consultancy services to the US.”
The UK’s top goods exports to the US include cars, pharmaceuticals, and aircraft, valued at £25.6 billion ($31.8 billion).
However, its services exports, such as financial and insurance services, were worth £109.6 billion, dwarfing the impact of goods tariffs.
A ‘uniquely positioned’ investment hub?
Neri Karra Sillaman, of the University of Oxford’s Said Business School, suggested that avoiding tariffs could make Britain a more attractive investment destination.
“If the UK remains tariff-free, it could be uniquely positioned to attract investment, talent, and new trade partnerships,” she said.
“Sectors like luxury, fashion, pharmaceuticals, and advanced manufacturing—where the UK already excels—could see an influx of investment and trade opportunities.”
She added that the automotive, aerospace, and financial industries could also benefit from increased demand if American buyers looked beyond tariff-hit suppliers in the EU or Asia.
“We have seen these patterns before—every trade war shifts the global economic balance, and this could be a moment for the UK to capitalize on change, be an active player rather than a bystander,” Sillaman said.
Could Britain become a trade ‘safe-haven’?
Some analysts argue that the UK could emerge as a beneficiary of Trump’s trade policies, particularly if European and Asian economies face tariffs while Britain avoids them.
Alex King, a former FX trader and founder of financial platform Generation Money, noted that China previously rerouted exports through Vietnam and Thailand to avoid US tariffs.
He suggested the UK could see similar benefits.
“If the UK does avoid tariffs, it is in a potentially advantageous position to benefit from similar routing from the EU,” he said.
King also pointed to signs that the British pound could benefit from the uncertainty. Following Trump’s initial tariff confirmations, the pound strengthened against the euro, the Canadian dollar, and the Australian and New Zealand dollars.
“This suggests global investors may see the UK as a potential safe haven,” he said. “Ultimately, the UK could be one of the few major economies with relatively tariff-free access to both the US and the EU, making it—and the pound—a potential winner.”
On Tuesday, the pound pared some of its gains against the euro but continued to strengthen against the US dollar.
Is the UK the market to watch in 2025?
Dan Boardman-Weston, CEO of BRI Wealth Management, said the UK could become a key market for investors if it avoids US tariffs.
“If Trump proceeds with tariffs on other countries, it’s plausible more goods end up in the U.K. and that this depresses inflation,” he explained.
“Greater inward investment into the UK is also likely if tariffs get worse and become a more permanent feature of the global trade landscape.”
He noted that with UK interest rates likely to fall faster than US rates, British companies could become more attractive to global investors.
“When this is coupled with the relative political stability of the UK and cheap valuations, the UK is the place to be overweight for 2025,” he argued.
Trump’s tariffs may shift investor focus away from the EU
Chris Metcalfe, chief investment officer at IBOSS Asset Management, said the UK is becoming more appealing to foreign investors.
“For foreign investors, since 2016, there have been reasons to pick an EU area country over the UK, principally because it’s simply a bigger market,” he told CNBC.
But with Trump’s tariffs looming over Europe, he suggested that could change.
“Although Trump’s tariff policy can look chaotic and muddleheaded, it is hard to see a scenario where he reverses course and imposes more tariffs on the UK rather than the EU. This is undoubtedly creating a positive backdrop for attracting US companies and investment into the UK, especially given the political chaos in France and Germany.”
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