The United Kingdom, as it was in the years after Brexit, is caught between the lure of the United States and the gravitational pull of Europe. For now, Britain is hoping that the special relationship with Washington—and a few early white flags—will be enough to shield it from the worst of the Trump administration’s erratic trade and foreign-policy moves.
But there are two big differences between this and the years after Britain’s departure from the European Union, when London kept chasing after a never-to-be-had trade deal with Washington.
The United Kingdom, as it was in the years after Brexit, is caught between the lure of the United States and the gravitational pull of Europe. For now, Britain is hoping that the special relationship with Washington—and a few early white flags—will be enough to shield it from the worst of the Trump administration’s erratic trade and foreign-policy moves.
But there are two big differences between this and the years after Britain’s departure from the European Union, when London kept chasing after a never-to-be-had trade deal with Washington.
First, the United States in President Donald Trump’s second term is no longer the reliable security partner that it had been for 85 years, driving the United Kingdom closer to Europe on matters of defense and security for Ukraine, if not yet on trade (or fish). And second, the U.K.’s Labour Party government came into office last summer with no clear vision of its relationship to either Europe or the United States, making it less of a bridge between them than a potential target for both.
The question is coming to a head because the United Kingdom, like the European Union and nearly every other country, is warily eyeing the Trump administration’s expected announcement on April 2 of sweeping new tariffs, Trump’s so-called “Liberation Day.”
The European Union’s trade commissioner, Maros Sefcovic, met with U.S. Commerce Secretary Howard Lutnick and U.S. Trade Representative Jamieson Greer on Tuesday. (No word yet on how that meeting went.)
Rather than threatening retaliation, as Brussels has promised though not yet finalized, Britain is considering a preemptive surrender to mollify Trump and secure a rare carve-out from what Trump previously vowed would be near-universal tariffs on all U.S. trading partners.
Specifically, U.K. government officials are mulling the idea of reducing or scrapping the Digital Services Tax, a levy on Big Tech firms that brings in close about 800 million pounds (roughly $1.03 billion) a year in desperately needed tax revenue but also generates white heat among U.S. technology executives, many of whom bristle at the notion that other countries could tax or regulate businesses operating in their jurisdictions.
U.K. Technology Secretary Peter Kyle said that “nothing is off the table,” including apparently a waiving of the digital tax, in prospective talks with the United States.
“The United Kingdom has no guiding principles” regarding either trade policy or its approach to Europe or the United States “and is in danger of getting pushed around by both,” said David Henig, the director of the U.K. Trade Policy Project at the European Centre for International Political Economy, a think tank.
What is clear, Henig said—at a time when the U.K. government is slashing services and welfare, strip-mining its aid budget, and spending more on defense to appease Trump—is that giving foreign tech billionaires a big tax break would be, at the very least, politically courageous.
On Wednesday, U.K. Chancellor of the Exchequer Rachel Reeves gave a preview of the government’s efforts to square a fiscal circle that is being shrunk by higher interest payments, more spending on defense, and big welfare cuts that are delivering smaller savings than expected, which will mean even more welfare cuts to come.
Blowing a nearly 1 billion pound hole—the expected annual revenue by the end of this decade from the digital tax—in that already tighter budget, even if it bought Britain immunity from some of Trump’s tariffs, would be costly enough. But it’s not even clear that such a move would appease Trump and shield the United Kingdom from the avalanche of tariffs that might arrive next week.
U.K. Prime Minister Keir Starmer’s flattery of Trump and seemingly good relationship with him did not shield the United Kingdom from the steel and aluminum tariffs that went into effect earlier this month. In the past, Trump has said that the global tariffs would apply to all countries, but he has recently amended that, admitting that he may give an exception to “a lot” of countries.
If the size and shape of a country’s trade balance with Washington is any metric to judge its vulnerability to the next round of tariffs—and countries with a trade surplus with the United States are absolutely in Trump’s crosshairs—then there are roughly 70 billion reasons for Britain to be nervous.
Then again, it’s not clear what tariffs might actually come next week, what or whom they might target, or even what legal authority they might rely on. (Don’t forget the twice-announced, once-paused tariffs on Canada and Mexico, which are slated to be on again starting next week.)
In recent days, administration officials have floated all sorts of variations on what began as a proposal for “reciprocal” tariffs to match duties wielded by trading partners, meant to redress decades of alleged unfair trading conditions for the world’s largest economy. The initial idea of matching all tariffs for all countries for all products was dismissed as impossible, since that would require millions of individual tariff adjustments.
Among the latest possibilities now being trotted out are universal tariffs with some countries exempted, or with some key sectors such as autos or semiconductors excluded, or perhaps with both country exclusions and sector exceptions, or perhaps separate automotive tariffs, or maybe tariffs on a more narrowly targeted group of countries that are, in Washington’s eyes, the worst offenders on trade.
Another aspect that’s still in doubt is whether the administration will limit its attempts at “reciprocity” regarding tariffs to other countries’ tariff rates, or if it will, as previously suggested, take a more expansive view of trade abuses to include nontariff barriers, standards and regulations, and even local tax rules. The Trump administration has seriously entertained including Europe’s value-added tax—a sales tax—as part of its tariff calculations, even though those taxes are paid by Europeans as well and don’t have any impact on trade.
Also still uncertain are the exact legal authorities that the administration might invoke to levy the biggest tariffs since the starring role that they played in worsening the Great Depression. Options include the International Emergency Economic Powers Act, obscure provisions of a 1974 trade law, or even more obscure provisions of a 1930 trade law.
Whether the United Kingdom can parlay its historic special relationship with the United States into special treatment from Trump’s America is one still-open question. But whatever happens, mollifying moves toward Washington—including soothing noises from British defense officials in the wake of Trump officials’ Signalgate insults to Europe—only deepen distrust with Brussels, which is still reeling more than eight years after Britain’s shock decision to depart from one of the world’s biggest economic blocs.
“The U.K. says it wants to rebuild ties with the EU, and every time it thinks to do things with the U.S., a few more people in Brussels get suspicious, even while the EU knows it needs the U.K. for its security,” Henig said. “It does nothing to ease the mutual distrust.”
The post Britain Is Banking on the Special Relationship to Stave Off Trump’s Tariffs appeared first on Foreign Policy.
