The UK economy could face a £24bn blow from Donald Trump’s plans to impose tariffs on countries that charge VAT.
The President announced plans to impose reciprocal tariffs last night, telling reporters that he considered VAT to be a tariff on US exporters.
“I have decided for purposes of fairness that I will charge a reciprocal tariff, meaning whenever countries charge the United States of America, we will charge them, no more, no less,” he said in the White House.
“In other words, they charge us a tax or a tariff and we charge them the exact same tax or tariff. Very simple,” Trump continued.
The US has no nationwide sales tax, and while 45 of the 50 states impose VAT, it is typically at much lower levels than in Europe.
George Saravelos, head of FX research at Deutsche Bank, estimated that UK exporters would face extra charges of 21 per cent as a result of the measure.
This would knock about £24bn off the UK economy for the next two years, according to Ahmet Kaya, an economist at the National Institute of Economic and Social Research.
William Bain, head of trade policy at the British Chambers of Commerce, said the measures will create “more cost and uncertainty for investors, businesses and consumers around the world”.
However, he urged the government to avoid getting “sucked into a trade war of tit-for-tat tariffs, which could easily spiral out of control”.
“It will need to adopt a flexible and agile response, while assessing the reaction of other major players. But it must make the most of the time available before the introduction of these tariffs to negotiate with the US on alternative arrangements,” he said.
Pat McFadden, Chancellor of the Duchy of Lancaster, said the government would not “overreact” but “wait and see” whether the tariffs “actually come to pass”.