UK Faces Dilemma Navigating Future Trade Ties Under Trump: Think Tank

President-elect Donald Trump speaks at AmericaFest in Phoenix, on Dec. 22, 2024. Rick Scuteri/AP Photo

Navigating the trade relationship with the United States is set to be one of the UK government’s primary challenges in the coming years, a British think tank has suggested.

The UK may soon feel pressure from Washington to align its trade policy on China with that of the incoming U.S. administration, a report by the Institute for Public Policy Research (IPPR) has suggested.

With the return of Donald Trump to the White House in January, the United States is expected to impose a range of tariffs on imported goods and ramp up economic tensions with China.

Trump has frequently pledged to impose tariffs in excess of 60 percent on Chinese goods and to end China’s most-favoured nation trading status on his first day in office.

These moves have raised concerns about the potential ripple effect on the global economy.

IPPR analysts described the situation as heralding “a new era of turbulence” in global trade.

“The UK government therefore clearly has an interest in negotiating with the United States to avoid or mitigate future import tariffs,” the report said.

While the UK may not be expected to match the level of U.S. trade measures on China, it will likely be “encouraged” to align its trade policy with that of its top trading partner across the Atlantic, the IPPR suggested.

In the year to June 2024, the United States accounted for 17.6 percent of total UK trade, including exports and imports of goods and services.

China came fifth with 5.1 percent, following Germany, the Netherlands and France.

In 2022, the UK invested £11.2 billion in China (0.6 percent of its total investment abroad), while China invested £4.3 billion in the UK (0.2 percent of total investment in the UK).

Shift to the East

While the United States and Europe remain Britain’s crucial trade partners, the UK has been recalibrating its trade relationships post-Brexit, with a notable tilt to the Indo-Pacific and China.

Trade deals with Australia (in 2021) and New Zealand (in 2022) eliminated tariffs on UK exports and liberalised agricultural imports.

The post-Brexit trade deals are part of the government’s approach to seek new trade partners, while also seeking to reset the relationship with the EU.

Despite these efforts, the IPPR noted a “disappointing picture for goods trade,” with UK goods trade dropping 10 percent below 2019 levels by the end of 2023, while G7 peers averaged a 5 percent.

However, services trade has been a bright spot, growing by 12 percent since 2019, making the UK the second-largest global services exporter after the United States.

In December, Britain became the first European country to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a free trade area established in 2018 that has a combined market of almost 600 million people.

Economist George Magnus has noted that both China and Taiwan have applied to join the CPTPP, and the UK’s position on this delicate issue will be closely watched, as all member states must agree to start talks.

“Taiwan is more ‘oven-ready’ for this modern agreement; China is much less so. What’s more, China will undoubtedly be resistant to changes in domestic policies that would be needed. The politics though are in the ascendant, and it is not clear how, or even if, a decision will be made,” he said.

China could also face UK duties on imports of electric vehicles (EV), if London chooses to follow in the EU’s footsteps.

In October, the European bloc imposed duties of up to 35 percent on EVs from China for the next five years, following an anti-subsidy investigation.

The IPPR suggested that Britain could face pressure from the United States to ask its trade watchdog, the Trade Remedies Authority, for a similar investigation.

“However, if pressured to impose significant tariffs on Chinese imports, the UK will need to balance the effects of President Trump’s tariffs against the economic consequences of imposing tariffs on Chinese goods, along with the inevitable Chinese retaliation,” the report said.

Balancing Act

Labour’s position is that of cautious cooperation and challenge following concerns over Chinese espionage allegations.

However, after a six-year hiatus, the UK and China have resumed economic and financial dialogues.

Chancellor Rachel Reeves’s visit to Beijing marked the renewed engagement, resulting in agreements valued at £600 million over five years to enhance collaboration in areas such as sustainable finance, capital markets and the reduction of trade barriers.

In a piece for The Times of London, Reeves said that “choosing not to engage with China is no choice at all.”

“National security and growth are not opposed. They are mutually reinforcing. We must and will continue to engage with international partners on trade and investment to grow our economy, while ensuring that our security and values are not compromised,” she said.

Reeves’s visit drew criticism from Conservative Party figures, including shadow chancellor Mel Stride and former Tory leader Sir Iain Duncan Smith, who was sanctioned by Beijing in 2021 for speaking out against the CCP’s abuse of Uyghur Muslims.

“We are the laughing stock of the western world. Europe is toughening up on China and America is going to toughen up on China, so we are going to be the odd one out,” Smith said.

Labour has committed to conducting an audit of the UK’s relationship with Beijing, with findings expected in early 2025.

Navigating the Trump Factor

In an interview with U.S. talk show host Hugh Hewitt, Trump has said he has been in communication with Chinese leader Xi Jinping, whom he described as “strong and powerful.”

Trump predicted they would “get along very well,” but cautioned that the relationship must be “a two-way street,” accusing China of “ripping off the U.S. for a trillion dollars a year.” 

The IPPR has described Trump as “unpredictable” but also a “deal-maker,” suggesting that Britain should be open to negotiations over a free-trade deal with Washington.

The think tank also said that while pursuing a closer trade relationship with the United States, the government should maintain “clear red lines” on food standards and online safety.

“The new Trump presidency is particularly delicate for the UK. The government will need to, on the one hand, offer an olive branch by signalling appetite for an ambitious trade deal, while at the same time strengthening the UK’s trade defences to brace for a potential tariff war.

“With the right focus on boosting green growth, securing economic resilience, and rebuilding vital relationships, the UK can turn the tide and reclaim its place as a leader in global trade,” said  Marley Morris, associate director at IPPR.