Even before reaching the coast, “Hurricane Trump” is already raising some fears, particularly on the commercial level. His threat to impose aggressive tariffs on left and right has sparked widespread fear. But in the midst of these fears, an unexpected refuge appeared. After years of calamity and misfortune – what can we say at this stage of digesting Brexit, the collapse of Liz Truss and the incendiary inflationary crisis -, The United Kingdom appears as a potential refuge in the face of the always unpredictable phenomenon that is the newly elected President of the United States, which has even been noticed in recent times in the price of the British pound. Two pillars support this unexpected role of refuge. On the one hand, what is called in the United Kingdom the “boredom dividend” in politics. On the other hand, and what is more relevant, it is perhaps the best “umbrella” in the face of the rain of customs duties: an economy focused on the export of services, a subject on which this “punishment » commercial will probably not fall.
Last week, analysts from major banks like JP Morgan and Crédit Agricole published optimistic forecasts for the pound sterling. They based their forecasts on a Bank of England being more moderate on monetary easing than other peers such as the European Central Bank (ECB) and the European Central Bank. ‘noise’ which comes from two leading economies: in USAfor obvious reasons, and Germany due to political instability that collapsed the coalition government between social democrats, greens and liberals, thus complicating the national governance council in the midst of a pressing economic slump in the European “locomotive”.
There is potential demand for the British pound to buy the gilding (UK sovereign bonds), after the collapse of the ruling coalition in Germany and the scenario of early elections paves the way for regulatory changes that could lead to a rebound in UK sovereign bond issuance. packages. “The German elections weigh on sentiment, Trump weighs on Treasury bonds,” summarizes Kathleen Brooks, research director at XTB. “The UK is the least ugly sovereign bond in the short term.”
In his analysis supporting the pound as a safe destination at present, Sam Zief, head of global monetary strategy at JP Morgan, pointed out that after the elections that ended nearly a decade and a half of conservative power, the arrival in power and with the Labor Party the force gives the United Kingdom the benefit of what is called the “boredom dividend” or “monotony”.
Coined by City economist Simon French, the “monotony dividend” is the value investors place on a vaguely competent, even boring, prime minister running a stable government with economic policies that add up, explains Jonathan Prynn , economics editor of the Evening Standard. Even though Keir Starmer’s cabinet barely managed to take the reins and present its first budgetary roadmap, more ambitious in terms of spending but without much fanfare, after years of scandals preservatives (Just go back to the headlines which gave Therese May, Boris Johnson either Liz Truss), the prospect of a “normal” government brings added value. As noted in a relevant column in the Financial Times Soumaya Keynes, columnist for the financial media, should have chosen Labor as her campaign slogan “Making Britain boring again” (“make the UK boring again”), in a clever allusion to the “Make America Great Again” of Trump.
But, beyond this political benefit of the doubt, the positive aspect on which the analyzes focus is the commercial aspect. The United States and the United Kingdom have always had a “special” relationshipas they always say themselves, both in political and commercial terms. Upon first taking office, Trump pushed Brexit and promised an ambitious free trade deal with the United Kingdom, which failed along the way. Substantial differences with successive and fragile conservative cabinets left unresolved an agreement that the Biden administration then tried to modulate in its own way and which also did not succeed due to disagreements, notably with the famous Protocol for Northern Ireland. NOW, Trump’s return raises suspicion, but also hope. Between these two sensations, a compelling argument seems to prevail: while Trump promises tariffs to friends and foes alike, the fact that the United Kingdom is the world’s second largest exporter of services suggests to some that the economy is less vulnerable trade restrictions. .
UK will not be a Trump target
The most fearful warn that sales of automobiles, Rolls-Royce aircraft engines, whiskey and medicines They could be in danger with the universal tariffs of between 10 and 20% envisaged by Trump. It is enough to recall the 25% retaliatory duties on single malt Scotch whiskey that Trump imposed in 2019. Some studies show worrying figures: the United Kingdom could face a 22 billion impact on its exports if Trump imposed a general customs duty of 20%. on all American imports. British exports could fall by more than 2.6%, warn economists at the Center for Inclusive Trade Policy (CITP) at the University of Sussex.
On the other hand, other voices point out that UK will not be a Trump target in its “trade war” and there is even some optimism that Washington will salvage its demand for a free trade agreement. The boss of the Anglo-American company, Duncan Edwards, is among those who do not believe that Trump’s policy was developed with the aim of attacking British exporters to the United States: “His real concern is that are countries that have a trade surplus with The United States yet apply higher tariffs than the United States applies to imports from the United Kingdom. In the case of trade in goods from the United Kingdom, the trade is more or less balanced. The UK is not the target in this case. “
Capital Economics speaks along the same lines. The famous British analysis firm assumes that, by mid-2025, Trump will have imposed a 10% customs duty on American imports from the United Kingdom. Even in this scenario, his calculation is that it would lead to a “minor and insignificant” drop in GDP of the United Kingdom than others believe. “This is mainly because the UK exports more services to the US (which are likely to be exempt) than goods, and furthermore, a potential fall in the pound sterling would likely dampen the rising prices of British goods for American buyers”, certifies its report. the country’s chief economist, Paul Dales, in a report for clients.
Just over 20% of all UK exports go to the United States. British exports of goods to the United States represent around 7% of total British exports and British services exports to the United States represent around 15% of the country’s total exports. and 68% of all those sent to the United States. In 2023, the UK will have a trade surplus in goods with the US of £4 billion (0.1% of UK GDP) and a much larger trade surplus in services of £68 billion (2 .5% of GDP). In total, the UK recorded a trade surplus of £72 billion (2.7% of GDP) with the US.
In reports leading up to the US election, Capital Economics strategists already suggested a minor impact of this new tariff policy, still assuming that the direct effect on the UK economy would depend on the price elasticity of demand – an economic concept which measures the sensitivity of demand. the quantity demanded of a good or service to changes in its price – from British exports, from any change in the exchange rate, from whether London retaliates by imposing a 10% tariff on all goods imports from United States and whether the new American administration accepts some type of exception for the United Kingdom.
US tariffs would increase the cost of British goods in the US by 10%, reducing US demand for British goods. The extent of the fall in the latter would depend on the price elasticity of demand for exports of British goods. According to Bank of England analysis, elasticity estimates range from 0.1 to 0.7. Since U.S. tariffs would be imposed on exports of goods from all countries, U.S. importers would not be able to purchase cheaper goods from other countries. “As a result, we assume a relatively low price elasticity of 0.1. This would mean that the 10% tariff would reduce UK exports of goods to the US by around 1% (600 million pounds or 0.02% of GDP) and the UK’s trade surplus with the US as well as the US deficit with the UK would be reduced by 600 million pounds,” said Ashley Webb of the analysis firm.
He the impact would be less if the US dollar appreciated against the pound sterling to reflect the rising prices faced by US consumers and the prospect of rising interest rates, Webb adds. This would limit the rise in prices of exports of British goods to the United States and partly offset the fall in American demand for exports of British goods. “If the pound fell by around 5% against the dollar and assumed the same elasticity of demand, exports of goods from the UK to the US would fall by 0.5% less (300 million pounds or 0.01% of GDP),” adds Webb.
He trade surplus Total UK including could increase This is even more true if the American customs duties provided for an exception for the country, estimates Capital Economics. If there was an exception for the United Kingdom, the dollar could appreciate further due to the prospect of higher interest rates in the United States. The 5% fall in sterling against the dollar, they point out, would increase the UK’s trade surplus in goods with the US by £1.4 billion (0.05% of GDP ), and the UK’s services trade surplus with the US of £1.8 billion. (0.07% of GDP) and the UK’s total trade surplus with the US at £3.2 billion (0.12% of GDP).
