How Donald Trump’s tariffs will make things a lot worse

Any person with care for humankind did, in my opinion, have very good reasons for dreading the return of Trump to the White House. However, in all the commentary that has gone on both during the presidential election campaign and since, little attention has been given to the potential and enormous economic ramifications of his policies.

Although it is obvious that the first and most direct implication of those policies will fall upon the people of the USA – who are going to pay a very high price for their folly in electing Trump – people in Scotland are going to feel the direct consequences of what he is planning to do in at least three, and maybe four, areas.

The initial consequences of Trump’s economic policy, which moves the USA outside the mainstream political consensus that has been in use to govern world trade for the last 75 years, will arise as a result of his plan to impose tariffs on all imports into the US.

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In straightforward terms, a tariff is a tax. That tax is charged in the US on the import of goods from outside that country. If, as expected, a 10% charge is imposed by Trump on the import of goods from the UK, this might raise the equivalent of £30 billion of additional taxes in the US.

That is because the UK as a whole exports approximately £300bn worth of goods to the US each year, making it the single largest exporter of goods to that country, except China.

The purpose of this tariff, or tax, is to make UK-made goods more expensive for US consumers and therefore encourage them to buy US-made products instead.

The obvious consequence is that Trump hopes that as a result of imposing this tax charge the volume of goods sold by the UK to the US will fall, and this will have an inevitable consequence for the Scottish economy.

Anyone working in a business that either supplies goods to the US now or makes components for companies that export products to that country is likely to see a downturn in their orders.

The knock-on effects are obvious. We will have a slower economy in this country. It is likely that there will be lower employment. It is almost inevitable that there will be downward pressure on wages. Keir Starmer will find it harder to deliver on his promise of growth. Rachel Reeves will, as a consequence, not wish to spend on the essential public services on which we all reply.

(Image: Stefan Rousseau/PA)

Things are going to look a lot more grim than they otherwise would.

This, though, is only the first consequence of these tariffs.

The second consequence, which is going to hit the people of the US hardest, is that this tax charge will increase prices in that country and so boost inflation there, which is the exact opposite of what Trump said he would deliver in his election campaign.

The problem is that this inflation might create a recessionary spiral in the US so soon after it has only just got out of one inflationary event, from which no economy in the world has fully recovered as yet.

And, since recessionary sentiment is frequently contagious, there is no guarantee that this will not impact the UK as a whole, and so Scotland.

Then, there is the third consequence. This arises because the US Federal Reserve Bank, or the Fed for short, is duty-bound to try to control inflation, just as the Bank of England is. Just like the Bank of England, it also only has one real weapon available to it to achieve this goal, which is to alter interest rates.

In that case, if Trump imposes tariffs with the deliberate intention of increasing prices, then the Fed is almost duty-bound to react by increasing interest rates, which can only make the economic situation for most ordinary people in the US worse.

(Image: Craig Ruttle/PA)

This one does, however, also have a very likely impact on people in Scotland. Where the Fed goes on interest rates, the rest of the world tends to follow. That is because the US dollar is the most powerful currency in the world, and whatever interest rate is paid on it tends to have an almost immediate impact on interest rates elsewhere, including here in the UK.

The Bank of England might have recently started cutting interest rates (in my opinion, far too late and by far too little), but there is no sign that they are doing so with any great enthusiasm.

These people are bankers, so they like high interest rates. That means that they will take advantage of any excuse available to them to keep rates as high as they are now or even to increase them again.

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This would be a crushing blow for anyone in Scotland hoping to see their mortgage and borrowing costs fall. It might also be bad news for people in rented accommodation, as high rents are linked to high interest rates.

Those are the most likely direct consequences for Scotland of what Trump is planning. There is literally no upside to any of this, neither in the USA nor Scotland, but Trump never promised to govern with the interests of ordinary people in mind.

So, what is the fourth possible consequence of Trump imposing these tariffs?

That is the possibility (and it is no more than that at present) that if Trump imposes tariffs, then other countries, including the UK, might respond in kind. This could only make things very much worse for all the reasons noted above, most especially if the UK takes part in this process.

Why might the UK impose tariffs? Simply because if everyone else does, we might need to do so.

That being said, the need to do and the risk from everything that Trump is doing would be much smaller if the UK was still in the EU.

Working as a whole, as an economic and tariff-free bloc of more than 450 million people, the EU might be able to respond in kind to US tariffs because it would still have such a large tariff-free area left within its combined territories for the impact to be managed.

But if this were to happen, the UK would then potentially be stuck in the middle of this fight, with consequences too horrible to imagine.

With the UK as a whole having no intention of returning to the EU, the need for Scotland to do so via independence and a new application for membership becomes ever more obvious.

What is apparent is that Trump 2.0 is going to herald in a more uncertain world. If Trump is intent on breaking the rules – as he appears to be – what those impacted need is mutual help to uphold those rules in the rest of the world so that the harm that he can cause is minimised to the greatest possible degree.

The case for Scotland leaving the vulnerability of membership of the United Kingdom behind and joining the EU instead becomes ever stronger in that case.