Britain may be spared the worst effects of Donald Trump’s proposed tariffs on global goods trade because of its economic dependence on services rather than goods, according to Andrew Bailey, governor of the Bank of England.
Trump has proposed imposing tariffs of up to 60% on Chinese exports to the US and up to 20% on imports from other countries. Economists warn such measures could trigger a global inflationary spiral, but Bailey suggested the UK economy is uniquely placed to withstand the impact.
“The UK is an open economy, but it is also true that more of our trade is in services rather than goods – tariffs do not work on services in the same way,” Bailey said. Services now account for 54% of UK exports to the US, including finance, insurance and education, which have grown significantly since Brexit. Unlike goods, services are subject to non-tariff barriers, such as regulatory differences, which are less affected by customs duties.
Bailey acknowledged that the ultimate inflationary impact of the tariffs remains uncertain, depending on how other countries and exchange rates respond. However, he stressed that Britain is less vulnerable than economies such as Germany or Italy, which have larger trade deficits with the US.
Swati Dhingra, a trade economist and external member of the Bank’s monetary policy committee, recently noted that rates could have disinflationary effects because producers could cut prices to maintain market share in major economies. This contrasts with concerns about tariffs driving up consumer prices.
Other central bankers, including the European Central Bank’s Christine Lagarde, have also downplayed the inflationary impact of rates on economies outside the US.
Bailey’s comments come against a backdrop of a slight rise in UK inflation above the Bank’s 2% target. While he expects inflation to stabilize, he notes that uncertainty remains over how businesses will respond to the government’s upcoming increase in national insurance contributions.
As Britain navigates these challenges, the country’s dependence on services and its lower exposure to US goods tariffs could provide a degree of economic resilience in the face of escalating global trade tensions.