Sir Keir Starmer and Chancellor Rachel Reeves are set to face intense questioning from MPs today as Donald Trump prepares to unveil sweeping tariffs that could upend the UK’s economic strategy. The former US president, poised to return to office, is expected to make the announcement at a White House event scheduled for 9pm UK time, calling it “liberation day”.
UK faces economic fallout from tariffs
Despite government efforts to secure exemptions, Starmer has conceded that “the likelihood is there will be tariffs” imposed on UK exports. Ministers remain hopeful of negotiating a deal with the US, but the potential economic ramifications are already a cause for concern.
Before Trump’s announcement, the Prime Minister will be grilled at PMQs, while Reeves faces scrutiny from the Commons Treasury Committee regarding last week’s spring statement. However, with tariffs looming, questions are expected to centre on how the government intends to mitigate their impact.
According to the Office for Budget Responsibility (OBR), new US tariffs could completely wipe out the Chancellor’s “headroom” against her debt rules, forcing either spending cuts or tax hikes to stay within the fiscal framework. The OBR also warns that tariffs could shave up to 1% off UK GDP, placing further pressure on an already fragile economy.
Meanwhile, research from the Institute for Public Policy Research (IPPR) suggests that tariffs on car imports alone could put 25,000 UK jobs at risk, with the UK car manufacturing industry in particular danger of destabilisation.
Negotiations and digital services tax debate
While a deal ahead of Trump’s announcement appears unlikely, British negotiators are reportedly pushing for an agreement that could see adjustments to the UK’s digital services tax in exchange for exemptions. The tax currently levies 2% on revenues of major US tech giants such as Amazon, Google, and Facebook.
Treasury minister James Murray declined to confirm whether changes to the digital services tax were being considered, stating that he would not provide a “running commentary” on ongoing negotiations. However, he stressed that any decision must uphold the principle of ensuring “businesses pay their fair share”.
The Liberal Democrats, staunchly opposed to revising the digital services tax, have called for the UK to join forces with Canada and the EU to resist Trump’s economic measures. Calum Miller, the party’s foreign affairs spokesman, criticised the government’s approach, stating:
“Despite weeks of refusing to criticise Donald Trump’s damaging behaviour, it’s now increasingly apparent that the Government will not secure a carve-out for the UK ahead of Trump’s global tariff war.
“Trump has shown himself to be an unreliable partner on the economy. No-one, not even the US’s oldest allies, are safe from the economic harm reaped by this White House.
“We need to end this trade war as quickly as possible. That means working with our Canadian and European allies in a united front against Trump, including retaliatory tariffs where necessary – as well as negotiating a bespoke new customs union agreement with the EU to better protect British businesses.”
Government divisions on retaliation strategy
While some political factions advocate for a robust response, Conservative leader Kemi Badenoch has urged against retaliatory measures. Speaking to LBC on Tuesday, she argued that a trade deal remains the “best way” to avoid further tariffs, cautioning that retaliation would “make everyone poorer”.
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“This is a time for significant diplomacy and showing that actually, if you put tariffs on, the people who will suffer aren’t just our exporters but also the American consumer who will have to pay more,” she said.
The full extent of Trump’s tariff package remains uncertain, but his administration is reportedly considering a 20% tariff on British imports, citing VAT regulations as unfairly discriminating against US goods.
Impact on UK industries
Trump has already confirmed that a 25% import tax will be imposed on all foreign cars entering the US – a move that poses a significant threat to the UK’s automotive industry. Last year, 16.9% of British car exports went to the US, totalling more than 101,000 vehicles worth £7.6 billion.
Additionally, tariffs on steel and aluminium imports remain in place, dealing another blow to British manufacturers.
With diplomatic negotiations ongoing and businesses bracing for potential economic turbulence, today’s exchanges in Parliament could prove pivotal in shaping the UK’s response to Trump’s aggressive trade strategy.
