Starmer seeks deal with US to avoid trade war after Trump’s car tariff blow
The Prime Minister said he did not want a ‘trade war’ with the US but that all options remained on the table.
US President Donald Trump’s decision to slap a 25% import tax on cars is “very concerning” but the UK will not be “jumping into a trade war” with America, Sir Keir Starmer has said.
The tariff on vehicles imported to the US will come into effect on April 2 in a blow to the UK automotive industry.
The Prime Minister said the UK would continue “intense discussions” with the US on closer trade ties, including measures to ease tariffs, but stressed that all options remained on the table if talks failed.
The US is the second largest export market after the European Union for cars built in the UK.
Some 16.9% of UK car exports were to the US last year, representing a total of more than 101,000 units worth £7.6 billion.
At a press conference in Paris, Sir Keir said: “I think tariffs are very concerning, there’s no doubt about that.
“And I’m really clear in my mind that the sector, the industry, does not want a trade war.
“That’s why, first and foremost, we’ve got to work with the sector, work with industry, in our response in relation to this.”
He said the Government would be “pragmatic and clear-eyed” in its approach.
“I think that, rather than jumping into a trade war, it is better, pragmatically, to come to an agreed way forward on this, if we can, and that’s why we’re intensively engaging in the way that we are,” he said.
But he added: “The industry does not want a trade war, but it’s important that we keep all options on the table.”
On Thursday evening, a Treasury minister suggested the UK has to take a “different approach” to other countries when it comes to negotiating tariffs with the US.
Chief Secretary to the Treasury Darren Jones told BBC’s Question Time: “We have to take a different approach in Britain, and look whether it’s on the debate on tax or the debate on tariffs, there is no easy answer.”
“If there was an easy answer, we would take it, obviously.
“These are complicated issues, but we think we’re providing the right type of leadership in negotiating with the Americans.”
The import tax on cars is on top of a series of reciprocal tariffs set to come into effect on April 2, which could include a general 20% levy on UK products in response to the rate of VAT.
Sir Keir’s reluctance to hit back with the threat of reciprocal tariffs is driven by fears of the economic harm a trade war would cause.
In its assessment of the UK economy, the budget watchdog warned a full-blown tariff war with the US could wipe 1% off gross domestic product next year and derail Chancellor Rachel Reeves’ hopes of balancing the books, forcing her to implement more cuts or tax hikes.
That “worst-case scenario” would come about if Mr Trump imposed 20% tariffs on British goods and the UK reciprocated in kind.
“The UK exports, in terms of goods to the US, around 2% of GDP,” Office for Budget Responsibility chairman Richard Hughes told BBC Radio 4’s Today programme.
“Car exports are about 10% of that.
“So that’s affecting directly UK goods exports of around 0.2% of GDP.
“So what Trump’s announced overnight is not the whole of that worst-case scenario, but it’s elements of it, and it’s the beginning of that risk side.”
Shares in UK luxury carmaker Aston Martin dropped sharply when stock markets opened on Thursday morning.
The firm, which is listed on the London Stock Exchange, saw its share price fall about 6% shortly after opening.
Jaguar Land Rover could be one of the UK vehicle manufacturers most affected by tariffs.
Its latest annual report shows 22% of its sales were to North America in the year to the end of March 2024.
Mike Hawes, chief executive of industry body the Society of Motor Manufacturers and Traders, said the announcement of tariffs was “not surprising but, nevertheless, disappointing” and he urged both governments to strike a deal that avoids further damage.
But Liberal Democrat Treasury spokeswoman Daisy Cooper called for the UK to be ready to hit back.
She said: “Our car industry is being left at the mercy of Trump and his destructive trade war.
“We should be preparing to respond if needed, including through Tesla tariffs that hit Trump’s crony Elon Musk in the pocket.”
Shadow chancellor Mel Stride said it is “very important” the UK has a trade deal with the US “that means we are protected from those tariffs”.
He told ITV’s Good Morning Britain: “I think it’s a balance between we want to make sure that we have the right relationship with America on all sorts of levels, including security as well as economic, in order to make sure we get the very best for our country.”
The tariffs announcement hit carmakers around the world, including in the US where manufacturers rely on parts sourced from outside the country which could incur extra costs.
General Motors sank 6.8% while Ford Motor dropped 2.6% on US markets.
But Mr Musk’s Tesla was up 6.9%, even though he acknowledged the use of parts made overseas meant “the cost impact is not trivial” for his firm.
