UK export growth could shrink by as much as £8.5 billion in two years if a full-scale trade war breaks out between the US and China, Allianz Trade has warned.
A protracted trade conflict between the world’s two largest economies could have serious consequences for Britain’s manufacturing sector, according to Allianz Trade, the trade credit division of global insurance and investment manager Allianz, formerly known as Euler Hermes.
The organization warned that an escalation of US tariffs on China to 60 percent on all goods – both critical and non-critical – and 10 percent on imports from the rest of the world could lead to significant economic consequences. However, Allianz Trade described such a scenario as “unlikely” and highlighted the damaging consequences for the US economy itself, including an expected impact on GDP growth of 1.2 percentage points and a rise in inflation of 0.6 percentage points in 2026.
Global trade would also feel the pressure, with growth potentially slowing by 2.4 percentage points under the maximum rate scenario.
A more moderate tariff increase – raising existing US tariffs on Chinese imports from 13 percent to 25 percent and introducing smaller increases of 5 percent on imports from other countries (excluding Mexico and Canada) – would still boost British export growth by approximately £. 2.2 billion over two years. It would also reduce global trade growth by 0.6 percentage points, Allianz Trade noted.
Capital Economics offered a more optimistic view, arguing that Britain’s direct exposure to potential Trump-era tariffs would be limited. Unlike China, Mexico or the European Union, Britain does not have a significant trade surplus in goods with the US. Trade in goods between the two countries is largely in balance, with UK services exports – twice the value of goods exports – unlikely to be affected by tariffs.
Capital Economics estimated that a hypothetical 10 percent tariff on all British goods exported to the US would result in a negligible impact on British GDP, ranging from -0.1 percent to +0.1 percent. This is due to the likely exemption of services exports and the offsetting effect of a weaker pound, which would see British goods priced more competitively in US markets.