The latest round of US tariffs, ostensibly aimed at goods produced using forced labour, has left the UK in a precarious position compared to its European Union neighbours. The UK's direct tariffs remain largely unchanged, but the EU has secured a significantly better deal, potentially creating a disadvantage for British exporters.
President Trump's administration has cited various justifications for imposing these tariffs, now focusing on allegations of forced labour in supply chains. These new levies appear to mirror previous rounds of tariffs, with a new rationale designed to withstand legal challenges. The immediate impact on the UK is minimal, as the tariff regime remains effectively the same as before.
However, it's the EU's improved standing that presents a critical shift. While both the UK and the EU face a nominal 10% rate, the EU's is a flat rate, whereas the UK's applies alongside other existing tariffs on goods such as footwear and textiles. This discrepancy means that the EU's overall trade-weighted effective tariff rate could be lower than the UK's (an estimated 8.5% for the EU compared to 6.8% for the UK).
Trade expert William Bain notes that this creates a competitive advantage for EU exporters into the US in certain sectors. The key reason for the EU's better treatment is its proactive step in passing legislation that bans forced labour goods, mirroring the US ban. The UK has not yet introduced such specific legislation, despite stating in October last year that it 'remained firmly opposed to the use of state-imposed forced labour' and was 'considering how best to reflect this position,' citing 'operational and legal complexities.'
The situation presents a dilemma for the UK government, which has historically favoured a voluntary due diligence regime regarding forced labour. Introducing an EU-style ban could improve its trade standing with the US, but such legislation is widely perceived as a way to target China, particularly concerning conditions in its Xinjiang province. The UK has, in recent times, welcomed imports of Chinese cars and is exploring a services trade deal with China, highlighting the delicate balancing act in its geopolitical and economic relationships.
This evolving trade landscape underscores the global trend of countries re-evaluating their trade relationships amidst ongoing tariff disputes. As the US continues to shift its rationale for tariffs, other nations are increasingly looking to strengthen trade ties with one another. The UK government will now face increasing pressure to decide whether to pursue a formal ban on forced labour products, potentially altering its trade dynamics with both the US and China.