Even if you don’t export to America, they will affect every business in this country
Many business owners and directors assumed he was bluffing but we all found out he wasn’t when President Trump announced sweeping tariffs on US imports from April 5th – so-called “Liberation Day”.
The rationale behind the tariffs is to increase costs for importing overseas products to encourage the manufacture of products within the USA, removing the reliance on overseas imports and making the country more self-sufficient.
Despite a lack of any evidence that tariffs improved trade or encouraged companies to make major logistical and capital decisions based on the whim of a mercurial President and based on a highly dubious accounting formula, nonetheless the UK saw a 10% default import tariff imposed on its exports despite not having a trade deficit with the UK.
The UK exports an annual £62 billion to the US mainly dominated by pharmaceuticals, power generators and cars. There is good and bad news here as so far pharmaceutical and medicinal products are exempted while cars are bound by a 25% minimum tariff.
There are other exceptions including copper, semiconductors and lumber as well as on energy, energy products and other minerals not available in the USA.
The tariffs are based on the “origin” nation of goods, not where they are exported from which could create difficulties for exporters and manufacturers that have to source parts and materials from various manufacturers located across the globe.
It won’t be as simple as routing goods through a favourable country such as the UK and expecting the 10% tariff rate to apply to goods that have been manufactured in the EU (20%) or say Vietnam (64%).
Business secretary Jonathan Reynolds announced that the UK is considering potential retaliatory action telling MPs in Parliament that “this is a formal step, necessary to keep all options on the table. We will seek the views of UK stakeholders over four weeks until May 1st 2025 on products that could potentially be included in any UK response.
“This exercise will also give businesses the chance to have their say and influence the design of any possible UK response. This government will strive for a deal that supports our industries and the well-paid jobs that come with them, while preparing our trade defences and keeping all options on the table.”
How do tariffs work?
Tariffs are calculated on the customs value of imported goods. As an example:
| Sales Price | £76,000 ($100,000) |
| Freight Costs | £3,800 ($5,000) |
| Customs Value | £79,800 ($105,000) |
| Additional duty on UK origin goods | £11,400 ($15,000) |
A 10% tariff creates a significant cost – £11,400 or $15,000 in the example – into the supply chain.
For any US importer, their first task would be to determine if they could take advantage of the US use of the first sale rule as this may allow for a reduced value to be used for calculating the import tariffs.
This is where the first sale rule requires direct sale and transport from the exporting country. If there is a previous sale in the supply chain, the earlier sale can, assuming that satisfactory evidence can be provided to the US Customs Authority (CBP) be used for customs duty purposes.
With the EU discussing raising reciprocal tariffs of 25% and American tariffs on China effectively doubling to 104%, the pressure is increased on UK and EU exporters which, due to the current increases in costs within existing supply chains, could be reluctant to negotiate new prices. To maintain their business, exporters may be forced in the short-term to allow discounts to US customers.
The world is changing.
That much is apparent but into what and how quickly are just two of the unknown questions that are adding to the global uncertainty that will affect every business large or small.
We offer a free initial consultation for any director who wants one to chat through their options and opportunities depending on their unique financial situation.
Nobody knows what the next few days and weeks will bring but by taking action now while you have the time and opportunity to enact your choices will bring you some degree of certainty that you and your business are on the right track.