Trump’s ‘liberation day’ tariffs ‘could spur raft of new trade deals’

Dr Totis Kotsonis of Pinsent Masons was commenting after Trump unveiled a new suite of tariffs for all goods imported into the US on Wednesday. The new tariffs will be added to existing tariffs imposed by the US, except where a limited number of exceptions apply.

Exports to the US face a different rate of tariff depending on the country of export. A baseline 10% rate has been added under the new tariffs regime, which will apply to exports from the UK, Australia, Singapore, Saudi Arabia and Singapore, among others. Other countries will face a higher tariff on exports to the US – 54% in the case of Chinese exports, and 20% in the case of EU exports, for example. Imports from Mexico and Canada will be subject to a separate tariffs regime than what Trump unveiled on Wednesday, which take effect on Saturday 5 April 2025.

Goods exempt from the new US tariff regime include pharmaceuticals, semiconductors, and “certain critical minerals, and energy and energy products”. A blanket 25% rate tariff will apply to US imports of automotive vehicles.

Trump has described the tariffs as “reciprocal” and necessary to address US national and economic security interests. China has promised to impose counter measures while European Commission president Ursula von der Leyen said the EU is prepared to do so too, should it fail to negotiate the removal of “remaining barriers to Transatlantic trade” with the US administration. UK prime minister Sir Keir Starmer said the UK government will pursue a trade deal with the US but that it has “a range of levers” it can pull if it cannot strike an agreement that is in the UK national interest.

Kotsonis said: “You will struggle to find a trade expert that would assert that these so-called retaliatory tariffs are in any way compliant with WTO rules or that they will lead to the generation of $6 billion in investment, as the US administration has claimed.”

“What the hike in tariffs is more likely to do is to increase the cost of living, lead to greater inflation and depress the world economy. None of this is good for businesses wherever they may be based,” he said.

“Businesses in the US will find that their manufacturing costs will rise as a result of inflationary pressures, whilst businesses which export their products to the US might find that the hike in tariffs will lead to diminishing demand and depressed sales. The impact of these issues on businesses will be even greater as a result of retaliatory measures by the rest of the world, not least China and the EU, all big markets for US products,” Kotsonis added.

Kotsonis, who is also a European Comision approved arbitrator for bilateral trade disputes under EU trade agreements, said that Harley-Davidson motorcycles and bourbon whiskey are among the US "politically sensitive" exports that could be targeted for EU tariffs under the package of countermeasures that the European Commission is considering. He said the Commission could also use its so-called Anti-Coercion Instrument for the first time to “impose additional measures that will make it more difficult for US businesses, including US tech companies, to trade in the EU”.

“Such measures might include intellectual property restrictions and barring US companies from bidding for contracts in the EU public procurement markets,” he said, though he expects the EU will take a staged approach to retaliation should EU-US negotiations not progress as the EU would like.

Kotsonis said that while UK exports will face a lower tariff than exports to the US from many other countries, many UK-based multinational businesses will feel the effects of higher tariffs imposed elsewhere where they have manufacturing bases in those countries.

“In a world where the manufacturing of goods involves components crossing multiple borders multiple times, most businesses will feel the impact of the Trump administration's retaliatory tariffs one way or another,” Kotsonis said.

“A possible but an unintended consequence of the Trump administration's retaliatory tariffs would be a fundamental shift in trade flows, with businesses seeking to find new markets away from the US, and with affected countries much more incentivised to do trade deals between them. For example, the Trump retaliatory tariffs might have created an even greater incentive for the likes of the UK and the EU to conclude their respective negotiations with India, an increasingly important trading partner which itself is badly affected by the Trump administration’s tariff hike,” he said.

The precise impact of the US tariffs announcement and any countermeasures applied in retaliation on exports from each country is currently unknown, though the Observatory of Economic Complexity (OEC) has developed a tariff simulator that allows users to consider the potential economic effects of the tariffs imposed by the US and its trading partners.

Though Trump’s announcement drew praise from some US industry bodies, including the Steel Manufacturers Association which said it would boost US manufacturing and jobs, shares on financial markets globally fell following his speech and a range of business bodies in Europe raised their concern about the impact of the measures.

The European Steel Federation described the move as “exacerbating … an already dire market environment”. It said 16% of EU steel exports go to the US and that “losing a significant part of these exports cannot be compensated by EU exports to other markets”.

German automotive manufacturers industry body the VDA described Trump’s new measures as US protectionism and said they will “only produce losers”, predicting a hit to global economic growth and job losses. It called on the EU to seek negotiations with the US on more favourable trade terms and move fast on putting in place new free trade agreements with other countries. The equivalent UK association, the SMMT, said the tariff announcement adds to the “multiple headwinds” already facing the sector and urged for trade talks to continue “at pace”.

Trade law expert Andreas Haak of Pinsent Masons said: "Intriguingly, in a press conference this morning, Germany's outgoing economy minister Robert Habeck presented a long classified list of US goods which will face EU tariffs, presumably, starting 15 April. He called for a firm response but it still of the opinion that a trade war can be averted. In this context, it is important to keep in mind that the EU's internal market is the biggest trading bloc in the world - giving a lot of leverage in still-to-come negotiations".

"The next days will be crucial to figuring out the scope and scale of the response. Against the US reciprocal tariffs, EU member states are weighing deploying the anti-coercion instrument - the so-called 'Bazooka'. Trade commissioner Maroš Šefčovič is due to meet with EU ambassadors on Friday to plan next steps, ahead of a meeting of the bloc's trade ministers in Luxembourg next Monday."

"We are currently in contact with two professors of economics to examine the economic impact on the German single market and the European internal market, as well as possible structural changes in the supply chains of international companies," he said.

The Scotch Whisky Association expressed disappointment at the prospect of tariffs on US imports and said it supports the UK government's “measured and pragmatic approach towards a mutually beneficial resolution”.

In January, industry association Comité Champagne warned that economic and political uncertainty could hit champagne sales globally. The US is the largest consumer of champagne outside of France.

The economic effects of the tariffs will not be known for some time, but some companies have already revised their financial forecasts in anticipation of the measures. Aston Martin Lagonda said recently that it now expects “modest growth” in this financial year having initially anticipated reporting “mid-single digit” percentage growth.

Kotsonis previously advised businesses to engage in scenario planning to mitigate the worst effects of tariffs as well as “re-assess their supply chains arrangements, business operations and planned investments”.