Donald Trump has confirmed plans to impose 25% tariffs on all cars imported to the US in a potentially huge blow to Rachel Reeves.
The American president’s announcement came just hours after the government’s own financial watchdog warned such a move would damage economic growth in the UK and wipe out the chancellor’s spare cash.
Speaking to reporters in the Oval Office on Wednesday, Trump said: “What we’re going to be doing is a 25% tariff for all cars that are not made in the United States. We start off with a 2.5 per cent base, which is what we’re at, and go to 25 per cent.”
He added: “We’re going to make it all countries, and we’re going to make it very lenient. I think people are going to be very surprised.”
The move, which is designed to boost the American car industry by making foreign vehicles more expensive, could trigger a global trade war as other countries retaliate with their own imports on US imports.
America is the UK’s second largest car export market, with sales of £7.6 billion worth of mainly high-end vehicles last year.
According to the BBC, British-based Jaguar Land Rover sold116,294 vehicles to US, exceeding sales to customers in the UK and China.
In their assessment of the state of the UK economy, published on Wednesday to coincide with the chancellor’s Spring Statement, the Office for Budget Responsibility warned of the damaging effects to the UK of a trade war.
The OBR said that in the most “severe” scenario, in which the UK and other nations retaliated against America, Britain’s gross domestic product (GDP) would be 0.6% lower than forecast this year and 1% lower next year.
That would “almost entirely eliminate” the £9.9 billion of “fiscal headroom” Rachel Reeves hopes to have in 2029, the OBR said.
Talks between the UK and US on avoiding tariffs remain ongoing, with trade secretary Jonathan Reynolds visiting Washington last week to discuss a possible “economic deal” with America.
Asked about the tariff threat, Reeves told the Commons: “We believe in free trade. We are a small, open trading economy and we benefit with trade links around the world, including with our single biggest trading partner the United States of America.
“And it is right that we work with our allies in the United States to ensure that that free and open trade continues, that is in our national interest and this government will always act in our national interest.”
But Lib Dem Treasury spokesperson Daisy Cooper said: “Donald Trump is wreaking havoc on the world economy with his destructive tariffs.
“The chancellor said she would seek economic stability, but there is no economic stability to be found in relying on the whims of this chaotic White House.”