The recent announcement by the US administration of new tariffs targeting 60 countries, including the UK and the EU, has seemingly lost its sting for many American businesses. Gone are the days when tariffs were a top concern; instead, companies now view them as temporary measures that will eventually be overturned in court or reversed by future administrations.
The proposed tariffs, ranging from 10% to 12.5%, aim to counter alleged forced labour in goods. Yet, the business community's perception of these levies has shifted significantly since last year's tumultuous tariff debate. Some companies cleverly exploited the previous announcements to increase prices above the actual cost of the tariffs, thereby padding their profit margins. Others successfully waited out the legal process, with the Supreme Court overturning certain previous tariff applications and prompting refunds for affected businesses.
This shift in attitude among US businesses stems from a growing awareness of the limitations of presidential authority and the robustness of the US legal system. With multiple instances of executive orders being challenged and overturned in court, many business owners now expect similar outcomes for new tariff proposals. As such, they anticipate these measures will be opposed, litigated, and eventually rendered moot, rather than posing a fundamental challenge to their operations.
The impending US presidential election also plays a significant role in this outlook. With the current administration's term nearing its halfway point, there is widespread anticipation that any new tariffs, even if they survive initial challenges, could be easily reversed by a subsequent administration. This uncertainty about long-term commitment to such policies, particularly given that no announced Democratic challenger supports tariffs, contributes to the view that they are a transient issue.
For UK businesses engaged in trade with the US, this sentiment offers a nuanced perspective on the potential impact of new tariffs. While any initial disruptions could affect import costs and supply chains, the expectation of their temporary nature may mitigate some long-term planning anxieties. The Bank of England will undoubtedly be monitoring these global trade developments closely, as changes in tariff regimes can influence international trade flows, exchange rates, and ultimately, domestic inflation and economic growth.