The UK could avoid the worst effects of Donald Trump’s proposed tariffs on global goods trade because of its economic reliance on services rather than goods, according to Andrew Bailey, Governor of the Bank of England.
Trump has proposed tariffs of up to 60% on Chinese exports to the US and 20% on imports. Economists have warned the measures could cause inflation around the world, but Bailey suggested the UK economy was uniquely placed to withstand the impact.
“The UK is an open economy, but it’s also true that most of our trade is in services rather than goods – prices don’t work the same way for services,” Bailey said. Services now account for 54% of UK exports to the US, including finance, insurance, and education, which have grown significantly since Brexit. Unlike goods, services are subject to non-tariff barriers such as regulatory differences, which are less affected by customs duties.
Bailey acknowledged that the final outcome of inflation remains uncertain, depending on how other countries and exchange rates react. However, he stressed that the UK is less exposed than economies such as Germany or Italy, which have large trade deficits with the US.
Swati Dhingra, a trade economist and external member of the Bank’s monetary policy committee, recently noted that tariffs could have an impact on inflation, as manufacturers may cut prices to maintain market share in major economies. This is in contrast to concerns about taxes raising consumer prices.
Other central bankers, including Christine Lagarde of the European Central Bank, have also downplayed the inflationary impact of tariffs on the non-US economy.
Bailey’s comments come amid a slow rise in UK inflation above the Bank’s 2% target. Although he expects inflation to stabilize, he noted that uncertainty remains about how businesses will respond to the government’s upcoming increase in national insurance contributions.
As Britain navigates these challenges, the country’s reliance on services and its limited exposure to US commodity prices may provide some degree of economic resilience in the face of growing global trade tensions.
