Trump tariffs — and possible exemptions — could provide opportunities for Britain

• President-elect Donald Trump's proposed trade tariffs could prove boon for the U.K., with analysts pointing to potential exemptions, economic upswings and the likely resumption of trade deal talks.
• "I suspect there is some ground for the U.K. to agree some kind of concession [or] carve-out, should the U.S. place tariffs on imports from the U.K.," Capital Economics' Paul Dales told CNBC.
• The U.S. is the U.K.'s largest trading partner, but unlike China and the EU, the trade gap between the two is far smaller.

LONDON — President-elect Donald Trump's proposed trade tariffs could prove a boon for the U.K., with analysts pointing to potential exemptions, economic upswings and the likely resumption of trade deal talks.

Britain may be hoping that its "special relationship" across the Atlantic — as well as Trump's affinity for Brexit — are enough to spare it from the most punitive of proposed trade levies. But analysts suggest the incoming president's main motivation is likely to be purely economic.

"The U.K.'s benefit is it's not in the trade war crosshairs. It just doesn't have that same need to level the playing field and level the trade imbalance," Jonathan Pingle, chief U.S. economist at UBS, told CNBC Tuesday.

Trump has long argued that global trade imbalances disadvantage the U.S. economy, with domestic production in particular being undercut by foreign goods. As such, in his 2024 campaign, he vowed to impose 10% to 20% tariffs on all foreign imports — a rate he said would rise to 60% to 100% for Chinese goods.

The U.S. is the U.K.'s largest trading partner, with trade between the two countries totaling £304.3 billion ($388 billion) in the four quarters to the end of the second quarter of 2024. As such, tariffs could serve a severe blow to the British economy.

Unlike China and the EU, however — with whom the U.S. runs a large trade deficit — the U.K.'s trade balance is far tighter, and largely centered on the services sector, which is less likely to provoke tough measures from a protectionist Trump administration, analysts say.

"Trump is also unlikely to think that the U.K. is taking advantage of the U.S. like he thinks China and to a lesser extent the EU is," Andrew Wishart, senior U.K. economist at Berenberg said in emailed comments Monday.

In fact, the U.K. could actually expect to see lesser levies, or indeed immunity, from the plans, according to Capital Economics' chief U.K. economist, Paul Dales.

"I suspect there is some ground for the U.K. to agree some kind of concession [or] carve-out, should the U.S. place tariffs on imports from the U.K.," Dales, told CNBC via email Monday. "That might mean that any tariffs are watered down or cancelled after a while."

While economists have warned that Trump's proposed tariffs would be broadly inflationary for the global economy, Capital Economics forecast in a pre-election note that the impact of tariffs would be either small — or perhaps even positive — for the U.K. economy, as a result of currency fluctuations and potential allowances.

Striking a U.S.-U.K. free-trade deal

That potential for special U.K. allowances has once again raised the specter of a possible bilateral trade deal between the two nations.

A U.K.-U.S. free trade deal was touted as one of the key benefits of Brexit, with "Leave" campaigners suggesting such a deal could be secured in short order following Britain's departure from the EU. But progress has since been slow.

When contacted by CNBC, the Trump campaign did not directly comment on the possibility of special trade allowances for the U.K., nor a wider trade deal. However, a transition spokeswoman said Trump's election win had given him a "mandate to implement the promises he made on the campaign trail."

The U.K. government, meanwhile, said that it was looking "forward to working closely with President Trump to improve UK-US trading relations to support businesses on both sides of the Atlantic."

It follows reports over the weekend that Trump could be willing to strike a deal with Britain due, in part, to the president-elect's support for Brexit.

Former political appointee Peggy Grande told the Independent newspaper on Sunday that trade tariffs were likely to hit the EU more than Britain because Trump wanted to see a "successful Brexit." Meanwhile, Democratic Governor of New Jersey, Phil Murphy, told the Telegraph that Trump may treat the U.K. more favorably because he has an "sympathy for somebody who leaves a bureaucracy."

Others were less sanguine about Trump's support for U.K. sovereignty, however, suggesting instead that the former president's key motivation may be to assert control over the continent.

"I don't think Trump cares about the U.K. exercising its Brexit freedoms, but I do think it's an attempt to divide and conquer Europe," Mujtaba Rahman, Eurasia Group's managing director for Europe, told CNBC by phone.

A dilemma for Starmer

Nonetheless, trade negotiators may have a steep hill to climb when it comes to securing a full bilateral trade agreement, with analysts voicing skepticism that there will be enough political will on either side to push a deal through.

"If Trump was really keen on this, then I suspect it would have happened when he was President between 2017-2020," Capital Economics' Dales said.

While a pro-Brexit Conservative government was in charge during Trump's first term in office which was keen to demonstrate the benefits of Brexit, with Labour now at the helm, finding common ground on key sticking points in the deal may prove more elusive.

British Prime Minister Keir Starmer, for instance, is unlikely to lower food standards and accept imports of hormone injected beef and chlorinated chicken requisite under U.S. trade terms.

"There are major vested interests on both sides and their preferences don't overlap. If there is a challenge for the Starmer government, it's in how it manages those discussions," Rahman said.

Meanwhile, Starmer will have a balance to strike to avoid provoking frustration – and potential retaliation – from key allies in Brussels, just as he is seeking to reset ties across the continent.

"Were the U.K. to secure an exemption on its exports to the U.S., that would put it at an advantage to the EU. Therefore, any retaliatory measures the EU puts in place could be imposed on trade with the U.K. too," Wishart said.

"That would be more damaging than freer trade with the U.S."