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The Wild West of politics on the global stage will impact the UK, WEAF considers how the latest US administration tariffs could potentially impact the aerospace, defence, and advanced manufacturing sectors.
The UK has been hit with a 10% tariff on all goods sold to the US, which when compared with other nations is considered light. In fact, it is the lowest reciprocal tariff rate globally. There are concerns over an outright global trade war as countries respond, Westminster is keeping a stiff upper lip approach to diplomacy, but some UK industry leaders are looking for a more bullish approach.
For context on the UK impact, the Office of National Statistics (ONS) reports that in 2023, the UK imported £57.9 billion of goods from the US, making Washington the UK’s second largest import partner after Germany. The US is the UK’s largest export partner with £60.4 billion of goods.
Now with effect, the additional tariffs do not apply to US imports of energy, energy products and other minerals not available in the US, this also covers copper and semiconductors. However, speculation surrounds semiconductors which may face tariff implications later.
Man of Steel
The first shot from the Trump saloon was materials. In March, the White House made it clear that there would be a 25% import tax for steel and aluminium entering the US. This tariff comprises not only the raw material, but products made with the metals.
In February this year, the HM Government launched a consultation process to strengthen the steel sector. In relation to the supply chain, resilience within has become increasingly vital, particularly in the context of materials like aluminium and high-performance steel. While aluminium prices have rebounded to pre-Covid levels, challenges remain, especially concerning specialist and high-strength steel. This will now be further impacted by the US import tax.
In an area already under constraint due to the Russia-Ukraine conflict this is likely to impact material availability and increase pricing in an already volatile market for consumers as the extra cost passes along the chain.
According to UK Steel, last year the UK exported 180,000 tonnes of semi-finished and finished steel to Washington worth £370 million. This accounts for 7% of the UK’s total steel exports by volume and 9% by value.
Gareth Stace, Director General at UK Steel, commented: “The UK Government must continue its efforts to strike a deal with the US, but we recognise that this requires willingness from both sides. Domestic trade policy on the other hand is entirely within the Government’s gift and it can immediately take action to strengthen our trade defences.
“We cannot afford to wait any longer as our exports are being damaged, and our market is being undercut by rising imports. UK Steel has warned that the steel crisis has been deepening for some time and bold, decisive, and significant interventions are needed now.”
Kevin Craven, ADS Chief Executive, commented: “There is a broader concern that these [tariffs] will add risk and price hikes on the highly integrated wider operating ecosystem that our sectors are built on – primarily relating to aluminium and steel. Companies in the supply chain are more likely to be impacted when utilising these materials – overall, the cost of doing business will be driven up by any tariff hikes regardless of where these tariffs are placed, and on what.”
Shots Fired
While the implementation of tariffs was aimed at protecting US manufacturing, it will inevitably come at a cost. The reciprocal tariffs result in increased expenses for the materials needed in the domestic market.
The 25% tariff on importing cars to the US, resulted in Jaguar Land Rover refraining from shipments as it contemplates its next steps. Whether other manufacturers follow suit remains to be seen but if they do, this could push UK Government to make bolder countermeasures at the negotiating table.
According to the ONS, UK machinery and transport equipment was the main commodity traded with the US in 2023, with almost £20 billion of imports and £27 billion of exports recorded between the two countries.
As the trade scenario evolves, the Prime Minister attended Jaguar Land Rover in the West Midlands on 7 March and delivered a speech to reassure the automotive industry, uphold British manufacturing, and repeat the Government’s commitment to the Plan for Change manifesto:
Sir Keir Starmer MP said: “We will keep calm and fight for the best deal with the US and we have been discussing that intensely in the last few days. But we’re also going to work with our key partners to reduce barriers to trade across the globe… And look, when it comes to the US, I will only strike a deal if it is in the national interest. If it is the right thing to do for our security. If it protects the pound in the pocket that working people, across our country, work so hard to earn for their family.”
Up in the Air
Whilst industry waits for the dust to settle and the opportunity for government-to-government talks, ONS has stated further that the UK trade in £19.9 billion of machinery and transport equipment imports from the US and this comprises various components, including mechanical machinery, engines, aircraft, and cars.
Airbus CEO, Guillaume Faury, commented ahead of the US tariff announcement, on a recent press call, that the aerospace giant would potentially look outside of the US for markets to sell its aircraft to.
He said: “We are buying a lot from the US. We are selling to the US, we manufacture, we assemble, we develop in the US… and we believe tariffs in this industry would be lose-lose.”
Furthermore, Airbus could pick up markets that the US manufacturers get priced out of due to the retaliatory tariffs, such as China. However, domestic airliners in the US might mean the European manufacturer loses out on any future demands in the States.
As WEAF has reported, Airbus and Boeing continue to face challenges with increasing production rates of its aircraft – and the tariff could be a further blow to meet targets as the market continues to fluctuate.
Voices from industry as expected are quiet at this stage whilst the scenario continues to evolve at pace.
In Defence
UK and European defence companies experienced impacts to share prices on Monday 7th April as the realisation of the tariff implementation took a sobering effect. However, defence giants in the US will likely benefit long-term from a larger US budget on defence spending. The effect on US-headquartered companies with British subsidiaries will be an interesting area to observe as the smoke clears.
The UK Government is a taking a diplomatic approach that has the special relationship at the forefront with a balance of British interests at its heart. In an address to the House of Commons on 3rd April, when the tariffs were announced, the Business Secretary Jonathan Reynolds MP said:
“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.
“It is the right approach to defend the UK’s domestic industries from the direct and indirect impacts of US tariffs in a way that is both measured and proportionate, while respecting the rules-based international trading system.”
The UK Government is now seeking industry feedback on the potential impacts of retaliatory actions on British businesses as part of its potential negotiation process with the US on a tariff review. This formal step ensures that all options remain available. Feedback from British industry will be considered until 1 May regarding products that are impacted by any potential UK tariff response.
Kevin Craven, ADS Chief Executive, stated: “The 10% tariff introduction – on top of our existing levies – is disappointing, but will not kill our sectors. It is in the small, not catastrophic category – some of our bigger members report possible additional costs of tens of millions of pounds, which is, sadly, better than we anticipated. Such levels distort the cost of goods and raw materials – perhaps irrevocably… We commend the UK Government’s ‘keep calm and carry on negotiating’ approach, rather than knee-jerk reactions.”
Colin Turner, WEAF CEO, commented: “In these uncertain times, the evolving trade landscape with America presents challenges, but it also opens doors. As we focus on the primary aerospace market here in the South West, we can look to strengthen trade links with our European neighbours. UK businesses are renowned for their resilience and adaptability; while uncertainty is daunting it also fuels innovation and opportunity.”
Whilst Trump might shoot from the hip and be led more by ChatGPT than GDP, now is the time for UK diplomacy to recover market impact for British manufacturing and exports. WEAF will continue to monitor the potential implications of the tariffs.
Further reading:
UK trade with the United States – Office for National Statistics