UK businesses face uncertainty as US President Donald Trump targets Value Added Tax (VAT) in his latest trade tariff threat. Trump has directed staff to create “reciprocal tariffs” for specific countries, including the UK, which could be affected by VAT calculations.
Although the UK previously appeared less vulnerable to US tariffs due to its trading relationship, the inclusion of VAT has raised concerns about its impact on British businesses. Analysts suggest tariffs of 20% or more could be imposed on the UK and the European Union. The British Chambers of Commerce (BCC) has warned that sectors like cars, pharmaceuticals, and food and drink could be heavily affected.
Trump’s administration has justified the tariffs by claiming VAT is an “unfair, discriminatory, or extraterritorial tax.” In the UK, VAT is applied at 20% on most goods and services, regardless of whether they are imported or locally produced. The possibility of combining existing tariffs with VAT could result in significant financial burdens for British businesses exporting to the US.
The BCC’s William Bain noted that although the UK exports fewer goods to the US compared to other countries, Trump’s measures could still “upend established trade norms” and create uncertainty. Fiona Conor, managing director of Trust Electric Heating, expressed concern about the potential impact on her Leeds-based company, which plans to expand into the US. She suggested that the government must “be strong negotiators” to protect UK businesses.
Economists have pointed out that VAT is typically considered non-discriminatory, but one of Trump’s advisers argues that it acts as a “discriminatory tariff” compared to the lower sales tax in the US. The latest announcement indicates Trump’s preference for country-specific tariffs rather than a universal tax on all imports to the US.
The UK government has been urged to negotiate with Trump to avoid a trade war. Senior UK government minister Pat McFadden advised patience, stating that the government would wait to assess the situation before reacting.
