UK faces recession risk after $29.5B blow from Trump tariffs

The UK faces the risk of a recession if US President Donald Trump moves forward with plans to raise tariffs to 25% in early June, potentially slashing £22 billion ($29.5 billion) from the country’s economic growth, according to a World Bank report.

Trump’s proposed tariff hike comes after he issued warnings to eight European nations in response to his Greenland plans, signaling the possibility of steep import taxes and fueling concerns of a US-Europe trade conflict.

The countries affected are Denmark, Norway, Sweden, the UK, France, Germany, the Netherlands, and Finland.

Uncertainty surrounds the US-Europe trade relationship 

During the weekend, Trump released a statement noting that as of February 1, eight European countries would face a 10% tariff on all goods imported to the United States unless they allow him to move forward with his plan of acquiring Greenland, the world’s largest island, an autonomous territory within the Kingdom of Denmark.

However, if they still do not agree to let him proceed with his plan for the complete and total purchase of Greenland, then he stated that he would be left with no other choice but to increase the rate to 25% taking effect on June 1.

Following the president’s announcement, analysts in the UK described the situation as severe, further cautioning that the UK, as a victim, may face a sharp decline in economic growth, given that the US is a major trade partner.

To further illustrate the intense nature of the matter, Capital Economics, a global firm providing independent economic analysis, forecasts, and data, shared reports indicating that the UK’s Gross Domestic Product (GDP) may decline by around 0.3% to 0.75% if Trump’s additional tariffs are imposed above the current 10% tax on UK imports.

Following this report, individuals in the country have raised concerns about the fate of UK trade. Responding to their concerns, Paul Dales, a Chief UK Economist from Capital Economics, pointed out that, “Since the UK economy is currently growing by 0.2-0.3% each quarter, if this negative impact happened all at once, it could lead to a recession.” 

Consequently, sources reported that stock markets significantly declined following the US president’s tariff announcement, set to impact Britain and the other seven European countries, until they approve his plans for the Arctic island from Denmark.

While this was going on, Keir Starmer, the Prime Minister of the United Kingdom, welcomed the current Speaker of the United States House of Representatives, James Johnson, at Downing Street on Tuesday, January 20, before he delivered his speech to the Parliament, with the topic focusing on the 250th anniversary of independence from London.

In a statement, Starmer said the UK will not retaliate against the US president’s move, arguing that the United States remains its key trade partner despite Trump’s mounting pressure on the trade relationship. 

Still, European stocks underperformed as carmakers faced difficulties amid Trump’s intensified push to acquire the Arctic island from Denmark.

European stocks sharply decline amid the US president’s tariff threats 

Concerning Trump’s recent announcement on eight European countries, BMW’s shares plummeted up to 7%. Similarly, the Dax index in Frankfurt declined by as much as 1.5%, and the Cac 40 in Paris fell by up to 1.8%. Apart from this, the FTSE 100 drastically declined by around  0.4%. 

However, the impact on the FTSE 100 was less severe than that on other companies because several investors backed its major defense firms amid escalating geopolitical tensions.

Interestingly, this situation was not the same as that experienced in the mining sector. As several companies faced operational declines, mining firms listed in London posted strong profits as the price of precious metals, such as gold, reached a record high.

Meanwhile, as Trump waits to see whether European nations will change their minds and approve his plans, sources close to the situation revealed that European countries have condemned his tariff threats against Greenland, calling them blackmail. Some countries, such as France, suggested responding with various untested economic countermeasures.

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