Possible exemptions from Trump tariffs could present chances for Britain.

• The proposed trade tariffs by President-elect Donald Trump could benefit the U.K., as analysts predict potential exemptions, economic growth, and the resumption of trade negotiations.
• Capital Economics' Paul Dales stated that there may be a basis for the U.K. to make some concessions if the U.S. imposes tariffs on imports from the U.K., according to a report by CNBC.
• While the U.S. is the U.K.'s largest trading partner, the trade gap between the two is significantly smaller compared to China and the EU.

The potential exemptions, economic upswings, and resumption of trade deal talks could benefit the U.K. due to President-elect Donald Trump's proposed trade tariffs.

The special relationship between Britain and the US, as well as Trump's support for Brexit, may not be enough to prevent the harshest trade tariffs. Instead, analysts believe that the new president's primary objective is economic.

According to Jonathan Pingle, chief U.S. economist at UBS, the U.K.'s advantage is that it is not directly affected by the trade war. As a result, it does not have the same need to balance the trade imbalance as other countries.

Trump has consistently maintained that global trade imbalances harm the U.S. economy, particularly domestic production, which is undermined by foreign goods. In his 2024 campaign, he pledged to impose tariffs of 10% to 20% on all foreign imports, with the rate for Chinese goods potentially reaching 60% to 100%.

The U.K.'s largest trading partner is the U.S., with trade between the two countries totaling £304.3 billion ($388 billion) in the four quarters to the end of the second quarter of 2024. Consequently, tariffs could have a severe impact on the British economy.

While the U.S. has a large trade deficit with China and the EU, the U.K.'s trade balance is much tighter, with a focus on the services sector, which is less likely to trigger protectionist measures from the Trump administration, analysts suggest.

According to Andrew Wishart, senior U.K. economist at Berenberg, Trump is unlikely to believe that the U.K. is taking advantage of the U.S. like he thinks China and the EU are.

Paul Dales, the chief U.K. economist at Capital Economics, predicts that the U.K. may not face any taxes or may even receive immunity from the plans, according to a report.

"If the U.S. imposes tariffs on imports from the U.K., there may be a chance for the U.K. to receive some concessions or a carve-out, according to Dales. This could potentially lead to the tariffs being watered down or cancelled over time."

Capital Economics predicted in a pre-election note that the impact of Trump's proposed tariffs on the U.K. economy would be small or even positive due to currency fluctuations and potential allowances.

Striking a U.S.-U.K. free-trade deal

The possibility of a bilateral trade deal between the U.K. and another nation has been revived due to the potential for special allowances in the U.K.

The expectation of a U.K.-U.S. free trade deal as a significant advantage of Brexit has been promoted by "Leave" campaigners. However, the pace of progress towards such a deal has been sluggish since Britain left the EU.

The Trump campaign did not respond to CNBC's inquiry about special trade concessions for the U.K. or a broader trade agreement. Nevertheless, a spokesperson for the transition team stated that Trump's election victory granted him the authority to fulfill the campaign promises.

The UK government is eager to collaborate with President Trump to enhance UK-US trade relations, which will benefit businesses on both sides of the Atlantic.

According to reports, Trump may be open to reaching an agreement with Britain because of his backing for Brexit.

Peggy Grande, a former political appointee, stated in an interview with the Independent newspaper on Sunday that trade tariffs would likely affect the EU more than Britain due to Trump's desire for a "successful Brexit." Meanwhile, Democratic Governor of New Jersey, Phil Murphy, shared with the Telegraph that Trump may show more favoritism towards the U.K. because he has empathy for someone who leaves a bureaucracy.

While others believed that Trump's support for U.K. sovereignty was motivated by a desire to assert control over the continent, others were less optimistic about the situation.

According to Mujtaba Rahman, Eurasia Group's managing director for Europe, Trump may not care about the U.K. exercising its Brexit freedoms, but it is an attempt to divide and conquer Europe.

A dilemma for Starmer

Securing a full bilateral trade agreement may be challenging for trade negotiators, as analysts doubt there will be enough political will on either side to push a deal through.

Capital Economics' Dales stated that if Trump was truly dedicated to this, it likely would have occurred during his presidency from 2017-2020.

With a pro-Brexit Conservative government in charge during Trump's first term, finding common ground on key sticking points in the deal was easier. However, with Labour now in power, achieving agreement may be more difficult.

Keir Starmer, the British Prime Minister, is unlikely to lower food standards and accept imports of hormone injected beef and chlorinated chicken under U.S. trade terms.

Rahman stated that both sides have significant vested interests and their preferences do not align. The Starmer government faces a challenge in managing discussions between these interests.

To avoid provoking frustration and potential retaliation from key allies in Brussels, Starmer must strike a balance while seeking to reset ties across the continent.

If the U.K. were to obtain an exemption on its exports to the U.S., it would gain an advantage over the EU. Consequently, any retaliatory measures the EU takes could also affect trade with the U.K.

"That would be more damaging than freer trade with the U.S."