US Tariffs: Impact on UK businesses

The return of Donald Trump to the White House as the 47th President of the US in early 2025 was a pivotal moment for global trade, and almost immediately cemented the central role that tariffs will play in US domestic and foreign policy in the years ahead. Businesses around the world should understand the changes that are happening and prepare for trade dynamics that could lead to increased costs, supply chain disruptions, greater administrative burdens, greater tax complexity and uncertainty about traditional trade relations.

What are tariffs?

Tariffs (also known as customs duties) are a kind of indirect tax levied on imported goods. The amount of duty assessed on any given import depends on that item’s tariff classification - or commodity code - usually a 10-digit number under the “Harmonized System” (HS). The US sets its own duty rates for all tariff codes.

In the US, the Harmonized Tariff Schedule of the United States (HTSUS) lists over 17,000 tariff code descriptions, each with its own corresponding duty rate with most duties assessed “ad valorem” - as a percentage of the declared value.

Classifying imported goods correctly will determine the correct “landed cost” and is critical for your business decision-making. This is a highly technical, specialized kind of analysis that should be undertaken only with input from customs and international trade experts.

You must understand the ‘origin’ of your goods - where they were made in most cases - though the rules are complex. Increasingly, certain countries, including the US, especially with regard to Chinese origin goods, are levying much higher tariffs.

Getting it wrong can have potentially significant consequences for your business, especially because tariffs are "above the line" cash costs, have strict deadlines for claiming duty refunds, and are increasing to levels not seen since the late 1800’s.

US tariff timeline so far in 2025

Initially, the US focus of attention was on imports from Canada, Mexico and China. Later, focus shifted to global tariff increases on aluminium and steel imported into the US from all countries on 10 March.

On 2 April 2025, President Donald Trump announced a new tariff strategy and signed a series of executive orders as part of a ‘Liberation Day’ address, in respect of addressing what are seen as historic trade imbalances in a number of areas, to the detriment of the US economy.

Thus, from 5 April 2025, a baseline 10% tariff will be imposed on nearly all imported goods entering the US, with even higher rates proposed targeting an extensive list of specific countries, including China, the EU and India, which were due to take effect on 9 April 2025.

Date	Focus	Tariff
4 February 2025	Chinese goods	10%
4 March 2025	Imports from Canada and Mexico Canadian energy Chinese goods	25% 10% 20%
10 March 2025	Aluminium and steel from all countries	25%
3 April 2025	Auto imports – starting with whole cars, then moving to car parts on 3 May 2025	25%
5 April 2025	Baseline tariffs on almost all countries.	10%
9 April 2025	‘Reciprocal’ tariffs come into effect, based on perceived ‘trade deficits’ with dozens of countries. They are paused for 90 days within hours of coming into effect.	Including: 20% on the EU 25% on South Korea 24% on Japan 32% on Taiwan
10 April 2025	Clarification on Chinese tariffs increased to 125% with additional 20% ‘fentanyl’ tariff - 4 March 2025	145% (125% + 20%)

The formula used to arrive at the proposed extra tariffs was based on trade deficits, so countries that typically export a lot more products into the US than are exported in the other direction were to be subject to the highest extra tariffs in the rate 11% to 50% (on top of existing increases, so much higher than this in some cases). With no surprise, the highest tariff was proposed for Chinese goods.

The UK has a trade surplus with the US, so exports to the US less than the US exports to the UK. The 2 April announcement was that such countries typically were to face additional tariffs at the lower, default rate of 10%, and this was the case with the UK.

Notably, the EU was proposed to face a 20% tariff. This could be increased when the EU announces its own retaliatory tariffs, which could provoke further reaction from the US Government. Also announced on 2 April 2025 was the planned removal of the $800 de-minimis threshold for imports from China and Hong Kong, to take effect on 2 May 2025. The de-minimis threshold means that typically parcels under that value are imported with no tax due and may be subject to less checks. This was announced in February but was suspended to make sure that the systems and procedures were in place to collect the taxes due on parcels of smaller value. Now that these systems are in place, many millions of packages coming into the US will be impacted.

On 5 April, the 10% tariff on certain countries came into effect, including the UK. However, to allow negotiations on addressing trade imbalances and other ‘barriers’ with around 60 countries that would be subject to much higher tariffs, these were deferred for 90 days from 9 April taking us up to 8 July 2025. There will be the ‘default’ 10% tariff in that period for imports from these countries.

A notable exception is China. In the previous Trump administration, large tariffs were placed on Chinese goods, maintained largely by the Biden administration. In this administration, it is clear that the US continues to regard China as a somewhat ‘difficult’ trading partner, in view of China’s substantial manufacturing base and ability to sell cheap goods worldwide. The EU and the UK have similar concerns and are also reviewing Customs processes to try to collect more tax from China. For China, a series of ‘tit for tat’ tariff increases in the days after 2 April has led to tariffs of at least 145% imposed by each country on the other’s goods. China has levelled a complaint to the WTO, so this matter is likely to develop.

Tariffs are paid by the recipient companies and often passed on to consumers, so increases will cause issues around the world as many businesses trade in goods whose customs origin is China. For every one import into China from the US, it is said that there are 5 in the opposite direction, so assessing the overall impact is difficult, but it will be considerable due to the number of goods sent from companies worldwide into the US that are of Chinese origin.

In general, it is expected that all countries will be negotiating with the US to arrive at better outcomes, so this matter is likely to be clearer in the next 90 days.

How will tariffs affect UK-based businesses?

UK businesses exporting to the US will face higher tariffs, at least 10%, if not higher depending on the sector. We believe the $800 de-minimis exclusion on 2 May covers all Chinese and Hong Kong origin goods, whether shipped directly or indirectly into the US.
The automotive, machinery, and steel/aluminium industries could experience reduced demand as US buyers face higher costs.
Supply chain disruptions will continue.
Many UK businesses rely on global supply chains that pass through Europe, China, and the US. Higher tariffs on these regions could increase the cost of imported raw materials and components. To mitigate these challenges, businesses may need to reconsider their suppliers, possibly reshoring operations or seeking alternative trade routes.
Some multinational businesses may shift focus away from the US and look for alternative markets, which could benefit UK trade as companies explore new business opportunities.

The exact impact on the UK economy is still unfolding, but one thing is clear: UK businesses need to remain agile, assess risks, and be prepared for potential changes in both the short- and long-term. Now is the time for businesses to rethink their strategies and adjust to the rapidly changing global trade environment.

Potential retaliation

In response to the new tariffs, some countries, including the EU, are imposing their own tariffs on US products, - but this too is an ever-evolving landscape. For example, the EU’s planned imposition of 25% tariffs on certain US goods due to start on 14 April has also been deferred for 90 days pending negotiations, following the announcement from the US on 9 April.

The UK Government is considering retaliatory measures and is seeking input from businesses that may be affected by potential future tariffs on certain US goods, which make up around 27% of imports. To reply to the request for commentary:

Check the list: Review the Government’s list of affected US products to see if your business is impacted.
Provide feedback: If your business will be affected, submit your response to the Government and HMRC by midnight on 1 May 2025.

For details and to respond, click here.

What to do now

Understanding the impact of these tariffs on your supply chains is essential for devising your future strategy to deal with their effect. In the longer term, modelling the impact of proposed US tariffs on your projected profits per unit of imported goods and you will need to consider the position on transfer pricing policy if you purchase from a related party, with benchmarking and policy updates.

Adjusting your pricing ‘valuation’ strategies, especially on related party purchased goods, and evaluating the use of customs duty saving approvals should be considered. You will also need to note any adjustment mechanism can have other tax consequences (e.g. transfer pricing).

Some companies may not be able to trade profitably with the increase in tariffs, and will need to consider alternative sourcing and supply chain models, or moving their own manufacturing facilities. Through our Global Value Chain offering, our experts can provide tax and transfer pricing input required to fully evaluate potential changes for your business.

Get in touch, and let our direct and indirect tax specialists help your business mitigate the impact of this new global trade landscape.