What a Trump win in the US election would mean for global trade

As investors, Wall Street and company bosses hedge their bets on the outcome of the US presidential election, and one of their biggest questions is how Donald Trump would handle global trade.
Companies are drawing up crisis plans for the possibility that if Trump wins the election on November 5, he could impose 60 per cent tariffs on imports from China and a baseline tariff of 10 per cent on all other goods brought into America.
At a rally in the battleground state of Pennsylvania this week, the Republican presidential candidate promised to pass the “Trump reciprocal trade act” and said the European Union would have to “pay a big price” for not buying enough American exports.
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Investors fear the tariffs would hit supply chains around the world, leading to potential retaliation from other countries and higher costs, triggering a knock-on effect for the world economy.
The tariffs proposed by Donald Trump would inflict “significant collateral damage on the US economy”, according to the Peterson Institute for International Economics. Researchers at the non-partisan institute estimate that at the lower range of estimates, the tariffs would reduce post-tax incomes by about 3.5 per cent for lower income households, while costing middle-income households at least $1,700 in tax increases each year.
Manufacturers of clothing, sports equipment and vehicle parts have vowed to pass on the cost of any tariffs to consumers. They include Columbia Sportswear Company, an American distributor and retailer of sports clothing and equipment which sells goods manufactured in 15 different countries. The company is also contingency planning by buying stock in advance for next autumn.
Economists are sceptical about the promise of tariffs boosting jobs for domestic workers. During Trump’s first trade war as president, starting in 2018, he imposed tariffs of up to 25 per cent on $360 billion of Chinese imports as part of an effort to encourage US companies to manufacture more products domestically. However, in 2019 the Federal Reserve Board found that the tariffs had led to a 1.4 per cent decline in manufacturing employment.
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The Tax Foundation, a non-partisan think tank, said Trump’s proposed tariff increases would raise taxes by another $524 billion annually and shrink employment by 684,000 full-time equivalent jobs. It said the estimates did not capture the effects of retaliation, nor the additional harms that would stem from starting a global trade war. The London School of Economics (LSE) estimates that Trump’s proposed tariffs would slow GDP in the US by 0.64 per cent.
The potential tariffs are considered by economists to be inflationary, which could upend expectations that the Federal Reserve will continue to cut interest rates.
Investors in interest rate options have begun raising bets that Republicans take both houses of Congress and the US presidency, which would make it more likely that they could increase tariffs.
They have been buying so-called long-dated options on interest rate swaps, a trade where investors buy the right to pay a fixed rate and receive a floating one, benefiting when interest rates remain high.
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In the short-term, a Trump victory is widely expected to lead to a boost for US equities, buoyed by the prospect of lower corporate taxes.
However, Stuart Kaiser, head of equity trading strategy at Citigroup, said there was a risk that inflationary tariffs could lead to higher US interest rates. “It’s not our base case but I think it is a risk factor,” he said. If investors are worried about longer-term fiscal and inflation, “that gets longer-dated yields higher very quickly, and that becomes disruptive to US equity risk sentiment,” he added.
In an attack on the European Union during a rally this week, Trump said: “They don’t take our cars. They don’t take our farm products. They sell millions and millions of cars in the United States. No, no, no: they are going to have to pay a big price.”
This week, Airbus, Europe’s largest aerospace company, said it was preparing for the possibility of new US tariffs on all imports, which would lead to higher costs to airline customers.
Scotch whisky and carmakers like Jaguar Land Rover, that sell vehicles in the US but manufacture them elsewhere, are likely to be targeted for tariffs, according to Duncan Edwards, chief executive of BritishAmerican Business, a trade association.
“We know that a lot of people are thinking about this, and there’s some crisis management and planning going on in companies that are likely to be targeted for tariffs,” he said.
Economists at the LSE estimated that the EU would only sustain a 0.11 per cent reduction in GDP in the event that tariffs were imposed which would be a considerably more muted impact than that suffered by either the US or China.
However, the muted overall impact masks significant differences across Europe. Germany, with its large automotive industry, would face a drop in GDP of about 0.23 per cent, more than double the EU average.
On the other hand, Italy and France, which both have considerably less exposure to the US, would see negative impacts on their GDP of just 0.15 per cent and 0.01 per cent respectively. While the US is the top destination for German exports, it is just the fifth-largest market for France.
Furthermore, many European companies have already learnt lessons from the time that Trump first imposed tariffs in 2018. Indeed, analysts at Barclays noted that some European businesses — notably those in machinery — reallocated some of their supply chains to the US during Trump’s last presidency. Others, such as those in construction materials and capital goods which generate revenue in the US, already produce much of their goods onshore.
The same study from the LSE estimated the effect on the UK to be closer to the European average, facing a 0.14 per cent hit to GDP. Analysts at Peel Hunt pointed to the UK’s industrial sector, including companies such as Avon and Hill & Smith, as particularly vulnerable to tariffs given their high US revenue exposures.
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However, many UK companies are less concerned about US tariffs than they are about the possibility of such actions sparking a larger trade war with Beijing.
Indeed, British retail businesses, which generally would not be directly impacted by US tariffs, would suffer in the event of a trade war given they source much of their non-food items from China. Likewise, London’s large number of listed miners export a significant amount of their products to China and would struggle in the event that they imposed tariffs.
Imposing blanket US tariffs on global imports could be “disastrous for global growth over the long term”, said Justin Onuekwusi, chief investment officer at St James’s Place, the wealth manager.
“Take tariffs on China as an example: these have already led to a decline in US-China trade over the last few years and increased trade deficits with other countries. This rebalancing effect of blanket tariffs on US trade partners would complicate global trade dynamics.”
China’s economy would be most severely impacted by Trump’s proposed tariffs, suffering a projected loss of 0.68 per cent of GDP, according to estimates by the LSE, compared with GDP losses of under 0.1 per cent in India, Indonesia and Brazil.
Beyond the obvious question of whether Trump will even win the presidential election, there is also the question of whether he would have the legal ability to impose universal tariffs.
While the US constitution grants Congress rather than the executive authority over trade, some of those powers have been ceded to the president over the years. Trump would have several levers that he could pull to raise tariffs. In particular, sections 301 and 232 of the Trade Act allow the president to impose tariffs in cases of “unfair” trade practices and “national security” concerns respectively.
Both were employed by Trump in his first term, though powers granted to him under the International Emergency Economic Powers Act gives him even broader powers to impose trade restrictions after declaring an emergency.
Trump threatened Mexico with the use of the law in 2019 but ultimately backed down. Employing the law to declare all imports an emergency could potentially lead to a challenge in the courts, from which it is unclear whether Trump would be successful.
What would Trump’s proposed tariffs mean for UK equities? Analysts at Barclays noted that so-called defensive stocks, where there is more of a constant demand for products or services, outperformed others in 2018 when news of tariffs first emerged under Trump’s first term.
A number of the largest companies in these sectors are based in London and might face significant headwinds if Trump wins the election next week.
North America was the largest market last year for Diageo, the drinks maker, representing over one-third of net sales. US spirits make up the bulk of this.
Analysts at UBS estimate that 79 per cent of products in the category are imported, with about 14 per cent from the UK. They estimate that a 10 per cent or 20 per cent tariff would represent a 4 per cent knock to the company’s earnings before interest and tax if it was fully absorbed.
However, they consider it would be slightly less vulnerable than some of its competitors, namely Campari and Remy, the cognac maker, where UBS estimates nearly 90 per cent of its products are imported from Europe.
Diageo is understood to be hopeful that the British government would make the case for British exports in any future trade disputes, particularly those targeted at such as industries such as Scotch.
The British speciality chemicals company makes about 21 per cent of its sales in the US, according to analysts at Barclays. It was one of three London-listed stocks placed in a basket of companies believed to be exposed to US tariffs by Barclays which has underperformed by nearly 15 per cent since early spring.
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The analysts noted that the Stoxx 600 chemicals subindex has been particularly sensitive to events seen to be particularly positive to Trump: it dropped by 2.1 per cent after Biden’s ill-fated debate performance and a further 1.7 per cent when Trump survived an assassination attempt.
While the global headquarters of Croda International is in the UK, it has four manufacturing sites in the US including another one under construction and a considerable proportion of what the company produces in the US is sold there too.
IMI, the specialist engineering company, sells about 24 per cent of its products in the US and is in a sector particularly exposed to higher tariffs, along with drinks retail, carmaking and chemical manufacturing.
The FTSE 100 company has its headquarters in Birmingham, though it does not have a significant manufacturing footprint in the UK. It has expanded into the US in recent years, buying CorSolutions, a micro-fluid control company, for $10 million in 2022 and the life science producer Adaptas Solutions for £202 million in 2021.
The luxury carmaker was in the firing line during the last Trump presidency, when its credit was cut deep into junk territory, partly due to concerns regarding the threat of US tariffs.
While the company’s credit rating has since improved, the US is its largest market and is considered the area with the greatest potential for growth.
Trump recently speculated that he could impose tariffs higher than 200 per cent on vehicles imported from Mexico, and previously pledged to impose a 100 per cent duty on cars and trucks made anywhere outside the US.
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The industry as a whole, however, has taken heed of Trump’s warnings before and invested heavily in the US. Despite criticism from Trump during his first election campaign in 2016, German automakers avoided a threatened 35 per cent tariff by negotiating new investments in US production.
Volkswagen expanded its electric vehicle production in Tennessee, while Mercedes-Benz promised a $1 billion investment in Alabama and BMW ramped up its production in South Carolina. Aston Martin’s main production site is located in Gaydon, Warwickshire, while its second facility is situated in St Athan, south Wales.