FTI Consulting Public Affairs Snapshot- Liberation Day: What next for the UK Government after the US imposes global tariffs?

Context

Speaking from the White House Rose Garden, US President Donald Trump announced sweeping tariffs on 180 US trade partners as part of what he and his administration had branded “Liberation Day”. This was a major set-piece moment for the President. Although Trump stated that the tariffs were “not full reciprocal” but “kind reciprocal”, the new US tariffs start from a “global baseline” of 10% for many countries and go up to an additional 54% for China, 49% for Cambodia and 46% for Vietnam, who are among the 60 trading partners hardest hit.

Trump announced that the tariffs were calculated on a perceived “charge” against US companies, accounting for, not just trading partners’ tariffs, but also any behind-the-border barriers the US considers protectionist. This is said to include value-added taxes (VAT), digital regulation, and local content requirements. Economists, however, have suggested that the “Liberation Day” tariffs have more to do with the goods trade surplus a trading partner has with the US.

Although the relatively modest 10% tariff against UK exports will have been met with sighs of relief in Downing Street, it is still a difficult situation for a Government determined to kickstart growth in a faltering economy. The Prime Minister, Sir Keir Starmer, and his team are faced with three options in response: capitulate, negotiate, or retaliate.

Capitulate?

Given the US’ position as the UK’s largest trading partner, “do nothing” will not be an appealing option for Ministers already facing pressure from the steel and automotive sectors. The tight fiscal climate means subsidies for affected firms are not a viable alternative. So the UK Government will favour engaging with the US to try to get a better outcome.

This week, the US Trade Representative (USTR) published its 2025 “National Trade Estimate”, a 397-page treatise on the “wide-ranging and harmful foreign trade barriers” facing US firms in international markets. Measures singled out as problematic in the UK include Digital Services Taxation, agricultural chemicals and biotechnology regulation, and the UK Space Agency’s participation in European Space Agency procurement. Even arrangements for the import of goods into Northern Ireland under the Windsor Framework and post-Brexit Border Target Operating Model were also identified as “non-tariff barriers” by USTR.

Although the Government has indicated it is willing to move on digital taxation, most of these complaints relate to important and politically sensitive areas of domestic policy. Being seen to allow the US to dictate significant changes would be politically challenging for the Government, even if a compromise resulted in the alleviation of tariffs.

Negotiate?

For several weeks, the Government has been in negotiations with the US on an exemption from tariffs for the UK. Ministers believe a deal is there to be done, with the Secretary of State for Business and Trade, Jonathan Reynolds, remaining “fully focused” on securing such an agreement. Wednesday night’s announcement may even make it easier for the US to agree to exemptions for the UK.

Beyond concessions on digital taxation, the shape of any UK-US deal remains uncertain. The US is likely to demand changes to the UK’s agri-food import rules which would allow import of US products. So called “chlorinated chicken” and “hormone treated beef” have been flashpoints for public criticism in UK-US trade relations and a red line for successive administrations. Allowing easier access to the UK market for US food products will be particularly unappealing for a Government already facing protests and strike actions from farmers angered by recent tax changes.

With the UK on the receiving end of the lowest level of tariffs following “Liberation Day”, Ministers will feel they have time to consider a response rather than immediately giving up contentious ground. The 10% tariff on the UK is half the level faced by the EU. This gap may well grow if the Brussels and Washington engage in tit-for-tat tariff escalation over the coming months. Getting off relatively lightly next to comparable trading partners gives the Government some breathing room to push harder on negotiations as they consider long-term responses.   

As noted by the UK’s former Chief Trade Negotiator, Sir Crawford Falconer, at an FTI Consulting event yesterday morning, “the critical question facing the UK is whether the tariffs imposed by the Trump administration are a tool with which to negotiate, or whether they represent a desire to fundamentally reshape the US economy by building a permanent tariff wall around old inefficient rust belt industries”. There are positive indicators so far, however, that President Trump is willing to negotiate, with the White House poised to open talks with a queue of international partners.

Retaliate?

Although it took less than a day for Reynolds to launch a business consultation to consider potential retaliation against the US, Ministers have made clear that the Government views retaliatory tariffs as an absolute last resort.  Reynolds’ emphasis on a “cool-headed” Government reflects the recognition that retaliatory tariffs would be likely to lead to escalation from the US and hinder, rather than help, the chances of striking a deal.  The US administration is likely to react with speed and aggression against any trading partner that moves quickly to retaliate, to try and deter any wider reprisals against US exports. Last week’s analysis from the Office for Budget Responsibility (OBR), which suggested engaging in retaliation against US tariffs could knock 1% off economic growth, is also likely to provide a strong deterrent.

Speaking yesterday, US Treasury Secretary Scott Bessen urged US trading partners not to retaliate, pledging that “there will be escalation” if they do. This is not likely to be an idle threat, with Trump threatening a 200% tariff against European alcohol exports in response to a potential retaliatory tariff on US whiskey.

Despite the ongoing “reset” in relations, the UK’s stance is likely to diverge from that of the EU, which has already pledged to retaliate. Notably, European Commission President, Ursula Von Der Leyen, has hinted that the EU may target US service exports, an unprecedented move which could be deployed under the EU’s 2023 Anti Coercion Instrument, also known as the “European Bazooka”.

By contrast, the UK approach of avoiding immediate retaliation and undertaking a consultation may help to keep the business community onside and blunt any political demands for an aggressive response. The unpredictable nature of the Trump administration, which has hailed “Liberation Day” as a “declaration of economic independence”, means retaliation remains the most perilous road for the UK Government to take.

Conclusion

These tariff announcements are the beginning, not the end, of the Trump administration’s reshaping of a global trade policy landscape which they see as skewed against US interests. They also seemingly mark the final nail in the coffin of the post-Cold War consensus in favour of globalisation and free trade – driven in large part by the US itself. Three months into Trump’s second term in office, further disruption to trade and global supply chains looks inevitable.

Amid historic uncertainty, it has never been more important to understand and anticipate how this new trade environment could impact businesses and shape both short term trade tensions and the long-term direction of international trade policy.