US-China trade deal risks wiping £8.5bn off UK exports, warns Allianz Trade
UK export growth could fall by up to £8.5 billion over two years if a full-blown US-China trade war breaks out, Allianz Trade has warned.
A protracted trade dispute between the world’s two largest economies could have a negative impact on the UK manufacturing industry, according to Allianz Trade, the trade credit division of global insurance and investment manager Allianz, formerly known as Euler Hermes.
The organization warned that increasing US tariffs on China to 60 percent on all goods — critical and non-critical — and 10 percent on imports from around the world could lead to a major economic downturn. However, Allianz Trade described such a scenario as “unlikely,” highlighting the damaging effects on the US economy itself, including a 1.2 percent hit to GDP growth and a 0.6 percent increase in income by 2026.
International trade will see a slowdown, with growth likely to fall by 2.4 percent under the highest-tariff scenario.
A moderate tariff increase – raising existing US tariffs on Chinese imports from 13 to 25 per cent and introducing a modest 5 per cent increase on imports (excluding Mexico and Canada) – could still curb UK export growth by around £ . 2.2 billion in the last two years. It would also reduce global trade growth by 0.6 percent, Allianz Trade noted.
Capital Economics offered a more optimistic view, arguing that the UK’s direct exposure to the potential costs of the Trump era would be limited. Unlike China, Mexico, or the European Union, the UK does not spend much of its trade on goods with the US. Trade in goods between the two countries is broadly balanced, and the UK’s services exports—double the value of its goods exports—are unlikely to be affected by the tariff.
Capital Economics estimates that a hypothetical 10 percent tariff on all UK goods exported to the US would result in a negligible impact on UK GDP, ranging from -0.1 percent to +0.1 percent. This is due to the possible liberalization of services exports and the weakening effect of the weak pound, which would make UK goods more competitively priced in the US market.
