CPA Economics Director Comments on Tariffs

Professor Noble Francis, CPA Economics Director, comments his thoughts on tariffs in response to the United States’ latest announcements.

“The United States reciprocal tariffs announced recently were not a surprise, as the President has made changing trade terms and negotiating deals to leverage changes in other countries’ tariffs a priority since his inauguration.

“The CPA has been briefing members and Government about how these policy changes may damage UK manufacturers and construction. The quick answer is that it all is complicated.

“The short-term issues associated with reciprocal tariffs include increased uncertainty over global trade and global economic growth prospects. The rise in uncertainty means increased risk, which must be factored into the pricing of firms worldwide, leading to further inflation, and this is already bad news. The tariffs also add to price rises in the US. Most UK exports of products and services to the US tend to be of higher value and higher quality, making them less price-sensitive than some other countries’ exports to the US. However, this clearly impacts some UK exports to the US.

“In the medium-term, this means that global trade will change in response to the tariffs, with the US becoming a less attractive destination for exports. Consequently, countries that previously exported large quantities to the US may find ways to circumvent the tariffs by rerouting their exports through other countries. Or, we may see some countries exporting more to Europe rather than to the US, which may ease some of the price pressure. The tariffs also raise medium-term uncertainty, as we don’t know how other countries will react to the reciprocal tariffs from the US. Increased uncertainty needs to be priced in. However, consumption tends to respond to price rises in the medium-term, so falls in demand and changes in exchange rates may offset some of the inflationary impact.

“In terms of its implications for UK construction, it is likely to mean higher uncertainty, volatility in pricing, and a shift, over time, towards different trade routes. Only around 15% of UK construction materials and products are exported, but for those materials and products that are exported to the US, then the tariffs short-term will make a significant difference. In terms of imports, the majority of materials and products used in UK construction are sourced locally (around 76%), as proximity is a key factor. Even when the UK imports, most imports come from the EU (around two-thirds of imports). Outside of the EU, the country from which the UK imports the most construction is China. However, it is far too early to determine the direct impacts of the US tariffs and subsequent changes in global trade routes. Yet, the higher uncertainty levels are likely to mean that if contractors are not sourcing locally made materials and products, then there is likely to be more risk and volatility in prices, which may be an issue for firms on fixed-price contracts signed up to 12–24 months ago when these potential risks wouldn’t have been on most firms’ lists of key risks. This is particularly the case for larger projects, where investor confidence is critical and where the projects are large upfront investments for a long-term rate of return. 

“The CPA will be monitoring these developments and assessing the impact as things become clearer.  This policy issue may also feature in our Spring Forecasts, due for publication on 28th April. Non-members can purchase CPA economic research here or alternatively contact our membership team to discuss options to join and access such expertise directly.”

The Department for Business and Trade launched a request for input which runs until 1st May 2025. This allows businesses to share their views on potential UK measures responding to the new US tariffs. Once the request for input closes, the Government will reflect on the feedback and consider how best to respond. The Government will continue to engage with the US Administration on the details of these tariffs, to understand how they will be implemented. The UK will continue discussions with the US on an economic deal that strengthens our existing fair and balanced trading relationship.

Click here to respond to the Department for Business and Trade’s request for input.