Trump tariffs will damage UK economy, Reeves tells Cabinet

Donald Trump’s tariffs will have an impact on the UK economy, Chancellor Rachel Reeves told Cabinet ministers, as the world braced for the US president’s import tax plan.

Prime Minister Sir Keir Starmer acknowledged the UK was unlikely to be spared, despite the close transatlantic relationship and efforts to strike a limited trade deal.

Ms Reeves told Tuesday’s Cabinet meeting the effect of the import taxes would be felt in the UK because it is an “open trading economy”.

Mr Trump will unveil sweeping tariffs on goods from around the world on Wednesday, an event he has dubbed “liberation day”.

The Prime Minister told Sky News “the likelihood is there will be tariffs” on exports from the UK and “nobody welcomes that”.

The UK appears unlikely to respond with immediate retaliatory measures, unlike other targets of Mr Trump’s sanctions, such as the European Union.

Sir Keir said businesses want a “calm and collected response to this, not a knee-jerk” and “nobody wants to see a trade war”.

But he said that “all options remain on the table” in response.

Asked if he had been “played” by Mr Trump amid efforts by Sir Keir to build a good relationship, the Prime Minister said: “The US is our closest ally.

“Our defence, our security, our intelligence are bound up in a way that no two other countries are.

“So it’s obviously in our national interest to have a close working relationship with the US, which we’ve had for decades, and I want to ensure we have for decades to come.”

The Government hopes to strike a limited trade deal with the US which could ease tariffs.

Sir Keir said talks on a UK-US economic deal would normally take “months or years” but “in a matter of weeks we have got well advanced in those discussions”.

The Prime Minister updated the Cabinet with “further details of ‘reciprocal’ global tariffs expected this week”, on top of the measures already set out by Mr Trump, which will hit US imports of steel, aluminium and cars from the UK, Downing Street said.

At the meeting, Ms Reeves said “global tariffs will have an impact on the UK as an open trading economy” but “securing a deal could mitigate some of those effects”.

Ms Reeves discussed the situation with her US counterpart, Scott Bessent, on Monday.

It is unclear what Mr Trump will announce on Wednesday, but his administration views the application of VAT rate as discriminating against US goods and could respond with a 20% tariff on imports from the UK.

Mr Trump has already announced a 25% import tax will be introduced on all cars imported to the US, a measure which will be a blow to the UK’s automotive industry.

Some 16.9% of UK car exports were to the US last year, representing a total of more than 101,000 units worth £7.6 billion.

Tariffs on steel and aluminium imports, including from British firms, are already in place.

The Government denied suggestions that free speech had been raised as part of tariff negotiations, after the US state department expressed concern at the case of a woman being prosecuted for alleged breach of a “buffer zone” outside a Bournemouth abortion clinic.

Conservative leader Kemi Badenoch has said a trade deal is the “best way” to avoid tariffs and that retaliation will “make everyone poorer”.

She told LBC: “A trade deal is the best way but it has to be something significant and comprehensive, not just a deal that tinkers at the margins in easy areas.

“Some people will want us to have trade retaliation, that just makes everyone poorer.

“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.”