Donald Trump's revealed trade strategy looks bad news for the UK

To some Trump looks like a madman – or at least is prepared to test the madman theory of negotiating to destruction – constrained only when the bond markets or Wall Street take real fright. To others, the chopping and changing of policy is a narcissistic power game, because Trump always wants to be the centre of attention and likes nothing more than asking countries to come and grovel for concessions. Or his strategy may be the product of AI mangling some rather tendentious economic theory, or the outcome of a battle between warring big beasts prowling the White House – ultimately the result of who has talked to the president last.

Undoubtedly, elements of these theories feature in most of the decisions to date. But, gradually, Trump’s revealed preferences are becoming clearer.

Trump is using tariffs for different purposes

It is possible to discern (at least) five different objectives behind Trump’s tariffs:

1. Instrumental tariffs. These are designed to achieve a policy objective unrelated to trade policy. This was the rationale behind Trump’s first use of tariffs – to persuade Colombia to accept a deportation flight, and was also the first outing for tariffs on Mexico and Canada – to get them to clamp down on illegal migration and cross-border supply of fentanyl. The characteristic of these tariffs is they are turned on quickly, levied at a level to induce policy action, and then turned off.
2. Geostrategic country specific tariffs. There are three countries singled out for repeated action by Trump: China, Canada and Mexico. These are the countries where the US is really fussed about bilateral trade – in the case of China because of the massive trade imbalance together with a long list of complaints, including stolen intellectual property. But at root this reflects a big geopolitical battle between the two 21st century superpowers; winning the rivalry with China is the big prize here. The issues with Canada and Mexico are a bit different and largely related to the impacts of free trade between those two countries and the US (though Canada certainly sees a wider objective of undermining Canadian sovereignty with Trump’s repeated jibes about Canada becoming the "51st state"). It is notable that these three countries were singled out for early action before 'Liberation Day' and did not see their tariffs 'paused' on 9 April. China and Canada have chosen to go the retaliation route.
3. Sectoral tariffs. These are the tariffs, now in force, on specific goods imported into the US – steel, aluminium and automotive imports. These were not paused – and seemed aimed to rebuild US manufacturing in these areas by persuading companies to reshore/onshore production. It is rumoured there are more sectors to come – most notably pharmaceuticals if/when the president can find a way of levying them without impacting the health of Americans.
4. Reciprocal tariffs. These are the formulaic tariffs announced on 2 April on any country with a significant goods trade surplus with the US, which then (with the exception of China) were paused on 9 April. Here the Trump administration does seem to be in the market for “deals” – seeking improved US access in return for modifying these tariffs. Whether such adjustments materialise we wait to see.
5. Baseline tariffs. This is the 10% tariff applied across the board even on countries, like the UK, that have deficits with the US. This is still in force and seems essentially to be a revenue raiser for the US. That means it looks as though it is probably here to stay.

The sort of tariffs to which the UK is subject leave little scope for negotiation

The UK has not been singled out for any sort of special treatment – either positive, as some in the government like to claim, nor negative – we are not subject to reciprocal or geostrategic or instrumental tariffs. But the problem for UK trade negotiators is that the two sorts of tariffs hitting UK trade now are the two where Trump is least likely to give way. If he wants to raise revenue, he cannot afford to give too many carve-outs from the 10% general tariff. And if he wants to onshore production in specific sectors, he needs to keep the sectoral tariffs in place. The worse news is that pharma – UK’s second biggest exports after automotive – may be next in line.

Of course that does not mean we cannot cut a deal. Consistency is hardly the hallmark of this president and he will not be too concerned about precedents or favouritism. But we may have to pay quite a high price for any deal – and not get that much out of it. And the deal that might most appeal to Trump could be one that undermines the potential for any meaningful reset with the EU.