Summary of "The U.K.'s Tariff Balancing Act" – The Indicator from Planet Money

Release Date: February 11, 2025
Host: Waylon Wong and Paddy Hirsch
Producer: Corey Bridges

Introduction

In the February 11, 2025 episode of The Indicator from Planet Money, hosts Waylon Wong and Paddy Hirsch delve into the United Kingdom's challenging position amidst escalating U.S. tariffs under President Donald Trump's administration. As Trump aggressively employs tariffs as a tool for enforcing trade policies, the UK finds itself navigating a precarious path between maintaining its strong ties with the United States and managing its deep-rooted economic connections with the European Union.

The U.K.-U.S. Special Relationship Under Strain

The episode begins by highlighting the unique and historically robust relationship between the U.S. and the UK. Paddy Hirsch sets the stage by describing how President Trump has been leveraging tariffs to influence international trade dynamics:

"Trump is not a fan of the EU. He says that their trade relations are unfair to the US and need adjusting tariffs look like a real possibility."
(00:28)

Waylon Wong elaborates on the immediate threat to the UK’s steel industry following Trump's executive order imposing a 25% tariff on all steel imports into the U.S.:

"With Trump signing an executive order for a 25% tariff on all steel coming into the U.S., that threat became real for the UK steel industry."
(00:28)

Balancing Act: Between the U.S. and the EU

The UK's dilemma stems from its strong bilateral relationship with the U.S. juxtaposed with its intertwined economic ties with the European Union. As Trump targets the EU, the UK's dependence on European trade complicates its ability to independently mitigate the impact of potential tariffs.

Catherine Thomas, Associate Professor at the London School of Economics, asserts:

"UK is out of line. And we'll say the UK but European Union is really out of line."
(01:30)

Hirsch interprets this statement as part of Trump's broader strategy, though Waylon Wong acknowledges the ambiguity:

"It seems that using tariffs on goods are proving to be a useful instrument for all sorts of policy goals."
(01:58)

Trump's Tariff Strategy and Its Implications

The hosts discuss President Trump's approach to tariffs, particularly focusing on his disdain for the U.S. trade deficit. Meredith Crowley, a Professor of Economics at Cambridge University, provides insights into Trump's motivation:

"I think when he tells people we have a trade deficit, they're not buying our stuff. He's trying to explain to people, you don't have a job because somebody's not buying something made in America."
(03:04)

Waylon Wong points out that the auto industry has been a significant target for Trump's tariff policies, aiming for what he terms "reciprocal tariffs":

"The U.S. import tariff on automobiles is 2 1/2 percent. In Europe, it's 10%. And he looks at that and says, that's very unfair. I want the Europeans to lower their import tariff on automobiles."
(03:38)

The UK's Intertwined Trade with the EU

The episode emphasizes how the UK's trade is intricately linked with the EU, making any direct tariffs on the EU potentially harmful to the UK. Hirsch notes:

"You see, most of the car made in the UK go to Europe, and they use parts that are part of the European supply chain."
(04:17)

This deep economic integration means that unilateral actions by the U.S. against the EU could inadvertently affect the UK, posing a strategic dilemma.

Potential Strategies for the UK

Facing this conundrum, the UK, under Prime Minister Sir Keir Starmer, must negotiate to preserve its interests without alienating either the U.S. or the EU. Meredith Crowley suggests that the UK needs to offer "golden baubles" to the U.S. to gain favorable treatment:

"You need to hold out a golden bauble in front of the President and offer it up."
(08:11)

One potential area where the UK could leverage its strengths is pharmaceuticals. As Meredith Crowley highlights:

"One of the UK's biggest exports to the US is pharmaceuticals... it's something that might be something at the time of like American manufacturers have long wanted better access to being able to sell American pharmaceuticals."
(08:22)

However, integrating deeper into the U.S. pharmaceutical market would require significant policy changes in the UK, particularly concerning its National Health Service (NHS), which would be politically challenging.

Insights from Past Negotiations

The hosts draw parallels with Trump's previous negotiations with Canada and Mexico, where concessions were often formalized through pre-existing agreements:

"Mexico was happy to codify something that already existed and Trump could then point to it and call it a win."
(07:22)

This suggests that the UK might adopt a similar tactic by formalizing existing favorable policies, thereby securing concessions without overhauling its systems.

Challenges and the Path Forward

Despite potential strategies, the UK faces significant challenges. Balancing the demands of a protectionist U.S. administration while maintaining its critical economic ties with the EU is no small feat. Additionally, internal constraints, such as the NHS's structure, limit the UK's flexibility in offering valuable concessions.

Waylon Wong sums up the precarious situation:

"The UK is not doing that well at the moment, to put it mildly. So what to do?"
(06:54)

Meredith Crowley reinforces the necessity for the UK to find sustainable solutions that align with both its strategic partners without compromising its economic stability.

Conclusion

"The U.K.'s Tariff Balancing Act" provides a comprehensive exploration of the UK's challenging position in the midst of escalating U.S. tariffs under President Trump. The episode underscores the complexity of maintaining strong bilateral relationships while being economically tethered to powerful blocs like the EU. As the UK navigates this intricate landscape, the balance it strikes will be pivotal in shaping its economic future and international standing.

Notable Quotes:

• Paddy Hirsch:
  "Trump is not a fan of the EU. He says that their trade relations are unfair to the US and need adjusting tariffs look like a real possibility."
  (00:28)

• Catherine Thomas:
  "The UK is out of line. And we'll say the UK but European Union is really out of line."
  (01:30)

• Meredith Crowley:
  "I think when he tells people we have a trade deficit, they're not buying our stuff. He's trying to explain to people, you don't have a job because somebody's not buying something made in America."
  (03:04)

• Meredith Crowley:
  "One of the UK's biggest exports to the US is pharmaceuticals... it's something that might be something at the time of like American manufacturers have long wanted better access to being able to sell American pharmaceuticals."
  (08:22)

• Paddy Hirsch:
  "You need to hold out a golden bauble in front of the President and offer it up."
  (08:11)

Produced by Corey Bridges, engineered by Kwesi Lee, fact-checked by Cooper Katz, and edited by McKim Kicking Cannon. The Indicator is a production of NPR.