The government has less than a week to decide how to respond to Donald Trump’s announcement of 25 per cent tariffs on car imports to the US. Keir Starmer and Rachel Reeves still seem to think that Trump might exempt Britain, but there is little sign of that coming out of Washington. Unless Peter Mandelson turns out to possess rather more diplomatic skills than most people will credit him with, the Prime Minister will be faced with an uncomfortable choice: does Britain retaliate, thus risking an escalation of the transatlantic trade war, or does it suck it up and watch as Britain’s beleaguered car industry suffers even more than it is already under the government’s net zero policies?
The foolishness of our failure to exploit our own gas reserves has been exposed
There is no good option. The US accounted for 17 per cent of UK car exports in 2023, worth £6.4 billion. But they were dwarfed by wider UK exports to the US, which were £60 billion worth of goods and over £120 billion worth of services. Try to stand up for the car industry through a Tesla tax and it would certainly be met with an escalation of tariff wars, but then we are likely to get tariffs slapped on other goods and services anyway.
We know enough about Trump by now to know that he is impressed by strong leaders and feels contempt for weak ones, so we certainly aren’t going to impress him by not retaliating. Then again, retaliate and you don’t just risk more tariffs on your exports, you harm your own consumers.
Trade is a two-way activity of mutual benefit. If the UK imposes tariffs on US goods, it will drive up inflation for UK consumers. Richard Hughes, head of the Office for Budgetary Responsibility, not only warned of this this morning, he admitted that his already-dismal forecasts for UK growth have not taken into account the threat of a trade war with the US. If they were revised to take account of it, the UK’s fiscal situation would be far worse.
Trade wars ultimately benefit no one except people who work in the sunset industries which need protection from foreign competition in order to survive. But they are not going to boost economic growth.
There is, however, another factor that limits Britain’s ability to retaliate against US aggression over trade: our hopeless reliance on imports of US gas. Until 2016, we imported no gas from the US. In that year, the first ships carrying liquified natural gas (LNG) started to disgorge their cargo into the UK gas network. In 2022, there was a huge upsurge as Europe rapidly reduced its imports of Russian gas. In 2023, LNG from the US accounted for 26 per cent of UK gas imports, second only to Norway, which accounted for 57 per cent.
Trump knows the power that our reliance on US gas imports gives him. It was he who first warned Germany of the foolishness of its reliance on Russian gas. When he made that point at the 2018 Nato summit in Belgium, he was scorned by the then German chancellor Angela Merkel and others. Then they saw for themselves that Trump was absolutely right.
We can rattle sabres and threaten retaliation over tariffs, but ultimately Trump could, if he wanted to, cut off a good chunk of our gas supply. We would be hard-pressed to make up for what was lost with supplies elsewhere. We do also import LNG from Qatar and from the unlikely source of Peru, but at present they only account for 6 per cent and 4 per cent of our supplies respectively.
Once again, the foolishness of our failure to exploit our own gas reserves has been exposed. Ed Miliband maintains the fantasy that his rush for solar and wind will bring us energy security, but sadly it won’t – not for decades, if ever. Our energy policy is leaving us dangerously exposed in this trade war.
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