In context: Donald Trump’s trade tariffs

What is the situation?

Donald Trump may only have been in office for a month, but his administration has already sparked fears of a global trade war.

The new US president repeatedly promised before his election that he would introduce a sweeping 10-20 per cent tariff on almost all imported goods into the US.

Trump said in September that tarrifs are “the greatest thing ever invented”. So far, only Chinese imports will face an additional 10 per cent tax, despite threats to Canada and Mexico.

A further trade war with the European Union is also in the Republican leader’s sights, worrying UK officials and businesses.

The “external revenue service” will bolster the American economy with additional cash from imported goods, Trump has said. He also hopes the move will encourage companies to build factories in the US and create more manufacturing jobs for Americans.

A range of retaliatory tariffs were imposed on several countries during Trump’s first term in the White House. However, economists say that these measures did not raise or lower US employment. Many of the initiatives were then paused by the Biden administration, including a 25 per cent tax on imported Scotch whisky which is estimated to have cost Scotland’s whisky trade over £600m.

What are tariffs?

Tariffs are taxes charged on goods imported from other countries. According to the World Trade Organization (WTO), they are intended to protect local trade over foreign goods and allow governments to collect revenue from these customs taxes.

The importer usually pays the tariff, which means that Scotland’s whisky companies – as the exporters – do not pay fees directly, for instance. Rather, they are affected when their product becomes more expensive abroad.

When hit with tariffs, countries often respond with their own levies, meaning domestic and foreign industry can be impacted.

Tariffs are mostly charged as set percentages of the value of goods. A 10 per cent tax on goods imported from the UK would mean a £1,000 tariff for every £10,000 of whisky heading to the US, for example.

Will Scotland be affected by Trump’s tariffs?

The prospect of new tariffs on goods imported into the world’s biggest economy has concerned countries around the world. Scotland, for its part, has already been through the ringer with Trump’s tariffs, despite his personal connections to Scotland.

In October 2019, a long-running UK-US trade dispute led to then-President Trump charging a 25 per cent tariff on Scotch whisky imports. The tax on whisky was particularly significant, as the industry accounted for a quarter of all Scotland’s international goods exports in 2022.

The Scottish Government said in November 2021 that this contributed to a decrease in global sales of Scotch whisky by 9.5 per cent, while the Scotch Whisky Association advised of losses in exports to the US of over £1m a day while the tariff was in place.

Four years later, Trump’s tariff plans could hit British businesses again, including Scotland’s whisky trade which exports £1bn worth of stock yearly to the US. The Centre for Economics and Business Research has estimated that a 20 per cent tariff on British goods imported into the US could result in yearly losses of £2.5bn for UK industry.

When could this come into force?

Joe Biden’s five-year suspension of this tax will expire in 2026, but his successor has indicated desire to ramp up tariffs in the immediate future.

The new US president suggested that tariffs on EU goods could be introduced “pretty soon”. The UK, Trump said, is “out of line” but may avoid tariffs after the president spoke to the “very nice” prime minister, Keir Starmer.

The reaction

First Minister John Swinney spoke to Trump after his election in November. Swinney told BBC Scotland’s The Sunday Show in January that he intended to use Trump’s “affinity” and “warmth” for Scotland in discussions over trade between Scotland and the US. The US leader owns two golf resorts in Scotland, while his mother was born on the Isle of Lewis.

“If that means it helps us to avoid tariffs that might be damaging to legitimate and important, critical, economic interests in Scotland then don't be surprised if this first minister of Scotland uses that channel to try to secure that outcome,” Swinney said.

UK Chancellor Rachel Reeves said that Trump is “very proud of his Scottish roots” in an interview, acknowledging that Scotch whisky is a “really important part” of the Scottish economy.

Scotland’s Deputy First Minister Kate Forbes recently told Holyrood that Trump’s tariff threats were a “matter of concern” for Scottish business. “In 2023, exports of Scottish goods to the USA were worth £4bn,” she said. “That’s 12 per cent of the value of all Scottish goods exports, so we can’t counter tariffs by just shifting exports.”

Forbes added that “you can disagree with the leader while still engaging with that nation’s economy”. The Scottish Government had previously faced pushback from Donald Trump’s son for endorsing Kamala Harris in November’s US presidential election.

Meanwhile, the president’s tariff plans clash with analysis of his proposal, which indicates that the approach could raise inflation in the US. The International Monetary Fund (IMF) has said that while tariffs might offer an immediate boost to the US economy, they could be a long-term disruptive influence on global trade.

What’s next?

Since Trump’s inauguration on 20 January, world leaders have anxiously anticipated the release of further information from his administration on tariff plans. As in his previous term, Trump is expected to use the threat of tariffs for leverage in negotiations with other countries.

He recently threatened a trade war with Colombia after the South American country refused to accept deported migrants from the US. Trump warned the Colombian government that he would impose a 25 per cent tariff on all goods arriving in the US from Colombia, which ultimately led to President Gustavo Petro accepting the migrants.