Paying the Price: Tariffs and the UK Economy

By Mitchell Ho

When people discuss tariffs, it may seem like one of those technical trade terms that only politicians and economists know about. On the surface, a tariff is simply a tax that companies bringing goods into a nation pay on imported goods. However, the result is far from superficial. Tariffs cause supply chain disruptions, cost increases, and frequently lead to retaliation. Since the beginning of President Donald Trump's second term in 2025, The U.S. has imposed broad tariffs on its trading partners, including the United Kingdom, which has changed how British businesses sell to one of their most significant export markets.

Let us examine the implications of each sector for the UK economy and why businesses should take notice.

Consider the automobile industry in the United Kingdom, one of our flagship industries. The U.S. is the single biggest market for the billions of pounds worth of automobiles that Britain exports each year. However, the Trump administration imposed a 25% tariff on cars made in the UK at the beginning of 2025. As a result, automakers immediately increased prices for American consumers, devaluing British models.

The blow was lessened by an agreement reached in mid-2025 that reduced tariffs on up to 100,000 cars annually to 10%. Although it is still an additional expense, it is much better as compared to the original 25%. Nevertheless, according to surveys of UK manufacturers, nearly half anticipate that their revenue will be negatively impacted by these new tariffs. This is not just a numbers game for businesses. Many are now considering moving some of their operations to the United States to avoid duties completely. Legal counsel plays a part by assisting businesses with cross-border investments, contract restructuring, and even determining whether tariff costs can be passed on to purchasers under current agreements.

In contrast, technology and pharmaceuticals appear safer, at least for the time being. The annual value of UK drug exports to the US exceeds £7 billion, and the trade relationship is becoming more reliant on semiconductors and other high-tech goods. The initial round of U.S. tariffs did not affect these industries. However, this relief may be fleeting. Citing national security concerns, Trump officials have alluded to the possibility of future duties on chips and medications.

How are companies in the UK reacting? Many are taking action by examining and modifing their contracts. Tariffs are typically borne by the buyer under international trade terms, or “Incoterms”, but not always. Certain contracts, especially those that state "Delivered Duty Paid," demand that the seller bear the expense, which could obliterate profit margins. Businesses are rushing to add price-adjustment clauses, renegotiate terms, or determine whether they can back out if tariffs render agreements unfeasible.

Secondly, they are lobbying the government to respond reciprocally. Consultations on possible counter-tariffs against U.S. goods, encompassing thousands of product categories, have been initiated by the UK government. In an effort to influence which American goods are targeted, industry associations and their legal departments are making their opinions heard. Some law firms have even established specialised "tariff task forces" to help clients navigate the rapidly evolving legal environment.

Thirdly, they are taking more precautions. Some businesses are looking at reshoring production to Britain, diversifying their export markets, or sourcing from other suppliers. New contracts, regulatory compliance, and frequent cross-border investment regulations are among the legal issues that accompany each of these actions.

The effects of tariffs, however, are not even. According to a Bank of England survey, about 70% of UK businesses don't think tariffs will have a significant impact on their operations. On the other hand, almost half of exporters to the U.S. anticipate lower sales. It serves as a reminder that although tariffs may seem far-flung to many, they can have a significant impact on sectors of the economy that are directly impacted by international trade.

The economic drag might not be immediately apparent, however, analysts caution. According to S&P Global, the UK economy fared better than anticipated in the first half of 2025, but as tariffs bite, export growth will likely slow down in the second half of the year. The government's stance is clear: tariffs hurt both the United States and the United Kingdom.

The effects of tariffs are tangible, despite their abstract nature. The realities of the new trade landscape include higher costs for automakers, impending risks for tech and pharmaceutical companies, and legal issues for companies attempting to adjust. It also serves as a reminder to law firms that being commercially aware involves reading balance sheets and comprehending how changes in global politics & policy affect supply chains, contracts, and client strategies. And the message is clear for the UK economy: resilience means being ready for change in a world where tariffs are back on the table, and the cost is being felt across industries.