The UK must resist retaliating to Trump's tariffs and stick to a policy of free trade for economic growth

11 February 2025, 18:51 | Updated: 14 February 2025, 16:00

With skyrocketing living costs and sluggish economic growth plaguing Britain, President Trump’s tariffs are the last thing we need.

This week, after much speculation, Trump has announced that his administration will levy a 25% import tax on all steel and aluminium products entering the United States from the 12th March.

Tariffs are effectively taxes on consumers. They are bad for businesses, worse for consumers, and incredibly harmful to the global trading system.

The exact impact on Britain is yet to be seen. UK steel has already called on the Government to retaliate, with the Director General of the industry body calling for “stronger action” against the “sledgehammer to free trade”.

Not only will these tariffs hinder UK exports to the US, but they may put downward pressure on the price of steel in the UK. As larger exporters of steel, such as Canada, sell less to the US, the global supply of steel outside of the US may significantly increase, resulting in the price of steel in the UK to dramatically fall. Perhaps a happy consequence for UK builders.

That being said, the tariffs announced this week are primarily going to hurt Americans. In his first term, tariffs on Chinese imports cost Americans over $800 per household on average.

Tariffs create a lose-lose situation by shrinking economic activity.

It is important we understand why international free trade produces better outcomes. In theory, each person could produce everything they consume, but it would severely limit a person’s choices.

A carpenter may do a great job building a house, but would struggle to grow his own food. A farmer may be brilliant at producing large crops, but would struggle to build a house. However, by engaging in voluntary exchange, both people benefit.

On a global scale, voluntary trade makes all parties better off, contributing to economic growth and lifting millions of people out of poverty.

This logic does not change just because other countries impose tariffs on the importation of your goods. Retaliatory tariffs would exacerbate the pain, because the country that introduces tariffs hurts, first and foremost, its own domestic consumers.

“Retaliation” is therefore, strictly speaking, the wrong word, because the “retaliating” country is hurting itself far more than the country it is supposedly “retaliating” against.

The UK Government should not guide their international trade policy based on what other countries do, and should certainly not retaliate by imposing tariffs on the US in response to their misguided protectionism.

• Reem Ibrahim is the Communications Manager at the Institute of Economic Affairs.

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