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How would a US-China Trade War impact the UK?

13th April 2018 Print

Ongoing tensions in the simmering trade war between the USA and China look set to impact both nations’ economies. However, there are fears that as two of the biggest countries and financial powerhouses in the world, that the effects of a trade war could trickle down and have a much wider impact. As one of the USA’s premier trade partners with other close ties, the trade war could have big repercussions for the UK in many ways.  

Chances of a US-UK Trade Deal

With Brexit negotiations also still happening and set to be finalised in less than a year, the UK is starting to look ahead. One of the main focal points is with a new US-UK trade deal being put into place after Brexit. The trade war between the USA and China could ruin the prospect of this happening though, as President Trump could request the UK place similar tariffs on China for this to happen. That provides a lot of risk for the UK though, as China is another large trading partner, so refusal could wreck such a future deal. 

Currency Volatility

Trade disputes often affect currency prices and volatility, so expect there to be an impact on the US dollar and Chinese Renminbi. This could help strengthen the pound somewhat, especially as it remains relatively weak compared to the euro. For forex traders in the UK and abroad using ATC Brokers this offers a good opportunity if the trade war escalates and such currencies increase in volatility. 

Chinese Tourism

The UK doesn’t export so much capital goods to China, but it does rely on a lot of Chinese tourism to help its economy. US tariffs could slowdown the Chinese economy and result in fewer tourists visiting the UK. Plus, as cars make up 28 per cent of goods exported to China, a slowdown may result in this number and the £13.5 billion goods exports falling significantly.  

Possible Positives for the UK

One potential positive could be that with the high tariffs the US is putting on certain goods from China, a lot of this may end up in Europe. This would result in lower prices for consumers but on the other hand make it harder for consumers to compete. It might also have a negative impact on the UK steel industry but many of the other tariffs shouldn’t affect it. 

A US-China trade war will have a knock-on effect for the UK but if tensions cool then this could be minimal.