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The Trump Effect – What is happening to the UK economy and why?

Donald Trump has certainly made waves in the early months of his second term as President. This time, however, he has one crucial advantage - experience.

In his first term, he entered office with bold, often radical ideas but lacked the political experience to execute them effectively. He likely underestimated the complexities of staffing his administration, particularly in appointing the hundreds of officials necessary to implement his agenda. Distinguishing between those he could trust and those he couldn’t proved to be a steep learning curve.

Now, with experience on his side, and control of both the House and the Senate, Trump is rapidly enacting a series of executive orders and policies to push his agenda forward.

The markets have already felt the impact. Over the past few weeks, U.S. stocks have lost $4 trillion in value, significantly affecting retirement funds in both the U.S. and the UK, as well as those invested in stocks and shares ISAs.

But the consequences extend far beyond the financial markets. Trump’s newly imposed tariffs are hitting consumers directly because ultimately, someone has to bear the cost, and it won’t be the manufacturers alone.

A recent BBC article highlights that this is just the beginning. These latest U.S. tariffs - effectively taxes on imports - also apply to products made with steel and aluminium, affecting everything from gym equipment and furniture to industrial machinery.

According to the Global Trade Alert think tank, UK exports of these products to the U.S. in 2024 amounted to approximately £2.2 billion. In short, these tariffs will impact producers of everything from computers to household goods, driving up prices, restricting trade, fuelling inflation, and potentially jeopardising jobs.

Adding further pressure, Trump has threatened to impose reciprocal tariffs on all U.S. trading partners, including the UK, starting this month. The UK government is currently engaged in emergency negotiations to secure an exemption, but reports suggest a deal is unlikely to be reached in time.

These tariffs mirror taxes that other countries impose on U.S. imports. The White House has also stated that it will factor in national Value Added Tax (VAT) rates when setting them.

While the UK has yet to retaliate, the European Union has already confirmed plans to impose tariffs on €26 billion (£22 billion) worth of American goods. The EU’s targets include Bourbon whiskey, jeans, and Harley-Davidson motorcycles - items chosen not just for their economic impact but for their symbolic and political significance in the U.S.

Despite hopes for a free trade deal, the UK government may soon face growing pressure to respond in kind, especially if these U.S. tariffs are perceived as unfair and punitive.

The independent Office for Budget Responsibility (OBR) has warned that a trade war could strip billions from economic growth. This, in turn, could push Chancellor Rachel Reeves to raise taxes again, further reducing disposable income and dampening consumer spending across retail, hospitality, and other sectors.

What began as a dramatic and entertaining political race to the White House is now evolving into yet another economic blow for UK businesses.

One thing is certain: uncertainty remains the new normal. While markets will likely recover, the real question is how much more strain UK businesses can endure. 

On a positive note, I'm seeing more company directors seeking financial advice earlier in the distress cycle. This proactive approach is creating more opportunities for debt restructuring and refinancing, potentially preventing formal insolvencies.

Accepting change, especially when it carries negative consequences, is never easy. But for businesses that can recognise the warning signs and act swiftly, the chance to fight another day remains within reach.

Accepting change, especially when it carries negative consequences, is never easy. But for businesses that can recognise the warning signs and act swiftly, the chance to fight another day remains within reach.

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manufacturing, technology, insolvency, corporate advisory, debt advisory, financial advisory, quick read