Trump EU tariffs: "For Britain, this tariff battle could be the start of a Brexit dividend"

Trump’s tariff playbook is back, with Europe beginning to feel the pressure. However the UK may still find a way to sidestep the worst of the fallout. Typically, tariffs trigger currency shifts as investors scramble for safety, with a 25% tariff on EU goods likely to bolster the dollar in the short term as protectionist policies funnel demand into American assets, whereas unsurprisingly the Euro would face significant headwinds. With European exports, already suffering from sluggish growth, in the firing line, a further weakened euro could push the ECB into a defensive stance, delaying interest rate cuts or even triggering unexpected interventions in an effort to stabilise the currency. For Britain, this tariff battle could be the start of a Brexit dividend. With both the US and EU engaged in a tit-for-tat trade war, the UK could position itself as a neutral trade partner, leveraging its free trade agreements to fill supply chain gaps and present itself as a more stable intermediary.

A tariff’s impact hinges on execution and retaliation. Trump’s 25% EU tariff could weaken the euro further and boost the dollar. Stocks may fall, with EU exporters like German automakers hit hard. For example, Germany sent €158B to the US in 2023, while US markets see mixed inflation and growth effects. The UK, outside the EU, could dodge direct tariffs but faces slower growth (up to 0.7% GDP loss if the trade war grows), a weaker pound vs. dollar, and local firms hurt by cheap EU imports. Inflation could rise, curbing Bank of England rate cuts to stimulate growth into the UK’s flagging economy. Global growth may drop 1% if the EU retaliates. Markets stay shaky, pending further developments.