Donald Trump's import tariffs could 'completely destabilise' UK's car industry

Donald Trump’s tariffs on US car imports could threaten up to 25,000 UK jobs, sobering new analysis has found.

The US president has dubbed April 2 ‘Liberation Day’ – the day that his country slaps import taxes on swathes of foreign goods.

The UK has already been subjected to hefty levies on steel and aluminium exports – and the full extent of today’s tariffs won’t be clear until later.

But the automobile industry is watching nervously.

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One in eight UK-built cars are exported to the states; the country is UK producers’ largest single export market. Trump announced a new 25% tariff on imported cars last week, but prime minister Keir Starmer has been lobbying for an exemption or dilution.

The tariffs could “completely destabilise” the UK car manufacturing industry, said Pranesh Narayanan, research fellow at IPPR.

“There could be 25,000 jobs at risk, based on the factories that export to the US,” he told Big Issue.

“It kind of depends on how much uncertainty a lot of these tariffs sort of generate. And also, it’s not just the tariffs, but there’s also the broader impact on the US economy. We’re already seeing, from a macro economic perspective, a kind of slowdown in things like consumer confidence in the US.”

Manufacturers such as Jaguar Land Rover, Aston Martin and Rolls-Royce may be hit hard. The US accounted for £6.4bn worth of UK car exports in 2023 – 18.4% of the total.

What tariffs will Trump introduce on 2 April?

Trump has previously said ‘tariff’ – which refers to an import tax on foreign goods – is his “favourite word”. Taxing imports, the president claims, will protect domestic industries.

But such levies can mean higher prices for consumers, because importers pass on expenses to customers. US importers would pay the new car tax, not UK exporters – but by making our cars pricier, the tariffs make them less competitive.

On 30 March, Trump said “all countries” could expect to be hit by tariffs; however he previously indicated that some countries might get “breaks”.

It’s unlikely that the UK will get an exemption on the car industry levy, said Narayanan.

“I think it’s unlikely that we will get a sort of lower number or some kind of exemption on the car tariff,” he told Big Issue. “And I think what might be a good result for Starmer is just that we have a slightly lower new tariff announced on us than other countries.”

This is a reference to the suite of other import taxes Trump is mulling over. The nature of such taxes is not yet clear. A spokesperson said that the government was “preparing for all eventualities”.

“We would expect the UK to be impacted alongside other countries,” they told BBC. “We are having constructive discussions on a US-UK economic prosperity deal but we will only do a deal which delivers economic prosperity for the British people and we will only act in the national interest.”

The Liberal Democratss have urged the government to retaliate with its own tariffs – just like Canada, Mexico and the EU have done.

“Just asking nicely clearly doesn’t work with Trump, so we have to stand tall with our allies in Canada and Europe and show that we will not be bullied,” said leader Ed Davey.

A reciprocal trade war would wipe billions off economic growth, the Office for Budget Responsibility (OBR) has warned, eliminating the chancellor’s ‘fiscal headroom’. This is the buffer the government has to carry out its spending plans. Without it, Rachel Reeves would need to raise taxes or undertake yet more cuts.

Regardless of the UK’s specific exemptions, the chancellor is in a difficult position, said Narayana.

“The impact of tariffs isn’t just the sort of direct impact of one country’s goods getting more or less expensive. It’s also the impact on global supply chains. The UK might get hit by lower tariffs and the EU, but then the EU might retaliate against the US, and it creates a whole maze for businesses to navigate.”

We won’t know everything today; it’s likely that the US will impose tariffs on the UK and then tailor them after the fact, Narayana said.

“Starmer seems relatively optimistic about some kind of deal,” he added. “It’s not going to happen Wednesday, it could be at some point over next few months.”

What can the government do about the car tariff?

It’s not all bad news. “As one door closes another one opens,” the IPPR has declared.

Demand for electric vehicles is surging. As the global export value of internal combustion engine cars fell by 24% between 2018 and 2022, the sale of electric cars soared by 740%.

Making Britain competitive in zero- or low emission-transport products could boost domestic transport manufacturing, Narayana said. Car manufacturing in the UK is now 2.5 times lower than car registration – meaning there is currently a significant reliance on importing cars from abroad.

“The government could stimulate domestic demand for green products and try and help car manufactuers that way,” he explained.

“We used to have a thing called the plug in grant [a government initiative discounting EVs for first-time buyres]. That was there to incentivize people to buy electric vehicles. We’re proposing a ‘buy green and buy British’ strategy for the car industry. We recommend developing a new version of the plug-in grant that provides low income, lower income households with a grant to buy British-made electric vehicles.”

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