What does Trump’s tariff showdown mean for UK food and drink?

It’s been a rollercoaster week for global trade, in which Donald Trump was due to roll out long-promised tariffs on an array of countries, among them Canada and Mexico.

But, as with most issues involving the US president, the landscape quickly changed. A last-minute deal with Canada and Mexico to postpone a 25% levy on all goods entering the US for a month was struck, putting a halt to a North America trade war.

Trump did, however, make good on his promise to tax Chinese imports, from 4 February, albeit at a much reduced rate of 10%, compared to 60% in his campaign pledge.

Crucially, he also warned the EU and the UK that they could be next.

But what is the likelihood of the UK being caught in a trade war? And what would the impact be?

The week’s recap

Both Canada and Mexico were readying for retaliatory levies on many US products, not least retail goods including food and drink, with Canadian prime minister Justin Trudeau warning of painful economic repercussions from Trump’s 25% tariff on US consumers.

But the two-way tariffs between the US and Canada and Mexico were averted in a last-minute change of heart by Trump, as part of an agreement that all three countries would compromise on areas such as immigration and drug and weapon trafficking.

However, the same negotiation tactics might not be applied to other regions. This is because in the case of Canada and Mexico, Trump used tariffs as “a geopolitical tool” to address concerns around border security, explains Marco Forgione, director general at the Chartered Institute of exports and international trade.

But with the EU – which Trump said was “way out of line” on US trade matters – he will use import taxes to address “a number of economic issues” including “the perceived unfair treatment of US companies, particularly tech and automotive, by the EU”, says Forgione. He could also use them “to get greater access for US agriculture and food manufacturers into the EU, and to try and shift energy procurement to the US”.

Trump has often named “trade deficits” with other countries as a reason to implement levies on imports. According to US Census data, the US had a trade deficit with the EU of over $213bn in goods last year, meaning it imported more from European countries than it sold to them – which Trump has dubbed “an atrocity”.

Forgione believes Trump will “absolutely” hit the EU with levies. The bloc has also reiterated its intentions to retaliate with a robust set of tariffs on US goods including automotive and energy.

On that basis, the UK shouldn’t find itself directly in hot water – in 2024, it exported $62bn worth of goods to the US, and imported around $72bn. Trump has said a deal with the UK “could work out”.

European fmcg impact

That doesn’t mean the UK will escape negative effects.

“If the US put tariffs on the EU, 40% of the UK’s trade is with Europe, so it would inevitably impact the UK,” warns Chris Southworth, secretary general of the International Chamber of Commerce UK.

UK consumers will “feel the pinch on specific products”, adds Ben Farrell, CEO of the Chartered Institute of Procurement & Supply.

Southworth argues it is in the UK’s “economic interests to help try and broker a solution”.

“It’s exactly the same in North America, Latin America, China and Asia, because our companies are operating across all of those jurisdictions,” he adds.

Take Guinness maker Diageo, which earlier this week said it would face a $200m hit to gross organic profits from March to the end of June should US tariffs on Canada and Mexico be implemented.

Some 45% of its net sales in the US come from products that must be made in the two countries, given geographic origin requirements – notably Mexican tequila and Canadian whisky – so the taxes would threaten Diageo’s growth prospects in North America, according to CEO Debra Crew.

“This is a huge issue for businesses trading with the countries imposing the tariffs,” says Southworth, including many fmcg multinationals.

Pepsico CEO Ramon Laguarta admitted on Tuesday the company was “not immune” to the tariffs environment, as he took a cautious view on the next 12 months. Mondelez, meanwhile, decided against including the impact of US tariffs and potential retaliatory actions in its outlook for the year, citing an “uncertain and rapidly evolving” trade environment.

Additionally, with 10% tariffs now in place on the import of Chinese goods into the US, and a 15% retaliatory import tax on American coal and liquefied natural gas to China due from 10 February, there are still fears the spat will escalate. Economists have estimated a trade war could wipe the equivalent of the French and German economies combined from global GDP.

Read more:

• Trump is moving fast. UK food & drink must unite now

• UK border authorities ‘unlawfully’ rejecting dairy goods from China

• Rachel Reeves pushes for ‘Brexit reset’ and Trump partnership in economic speech

The global stock markets had a taste of that on Monday, when Trump’s tariff talk led to a collective meltdown: Japan’s Nikkei 225 index fell 2.7%, Germany’s DAX dropped 2.1% while the UK’s FTSE 100 declined 1.2%. In the US, both the Nasdaq and the S&P opened around 2% down.

“The fact markets have got the jitters implies investors previously weren’t entirely convinced that Trump would go ahead with tariff threats,” says Russ Mould, investment director at AJ Bell. He notes “Trump talks a lot but doesn’t always follow through; perhaps this time he wants people to take him more seriously – fight first, talk later.”

Forgione notes: “There is obviously instability in the global economy and instability is problematic, particularly for highly integrated supply chains.”

UK-based businesses should “make sure they are aware of what’s happening on an hour-by-hour basis”, he says.

However, he believes there are potential opportunities for British businesses to come out better off.

“In the US market there is a huge amount of interest in UK products, particularly food and drink” such as salmon, whisky and cheese, Forgione says. “If tariffs are imposed on similar products from Mexico, Canada and the EU, there is a potential competitive advantage for UK producers to sell into the US.”

Global economy fears

Ultimately, the most significant complications for the UK and Europe will arise from how Trump’s protectionist agenda affects the US economy – and, by osmosis, the global economy.

Businesses all over the world are reliant on the US economy “remaining buoyant and the American shopper continuing – and in fact increasing – their propensity to shop”, says Ian Wright, former chair of the UK Food & Drink Export Council.

If shoppers in the US are faced with higher prices, demand overall will likely fall, which will in turn impact profits for both domestic and international companies, while contributing to inflation and higher interest rates, which inevitably spill over to other markets.

And Trump’s ‘America First’ policy goes beyond trade and tariffs – his crackdown on immigration will shrink the pool of traditionally cheaper foreign labour in the US, pushing domestic wages up, which in turn becomes “immediately inflationary”, Wright says. “The Federal Reserve will have to take account of this potential inflation locked up in the system in its deliberations on interest rates”, which, he reiterates, “has global implications”.

These will be most notably impactful for “smaller businesses that will have limited ability to absorb the costs”, Southworth argues. “We’ll all feel it in the shops and ultimately our pockets.”

For now, it is clear Trump is simply using trade to drive the domestic policy he promised his US voters – whether his agenda will work to their advantage is also a global gamble.