UK Exports at Risk of Losing £8.5 Billion Due to Potential US-China Trade War, Allianz Warns

A full-scale trade war between the United States and China could cause UK export growth to shrink by as much as £8.5 billion over the next two years, according to Allianz Trade. The warning comes as the global insurance and investment manager, formerly known as Euler Hermes, assessed the potential impact of a prolonged trade conflict between the two largest economies in the world.

Allianz Trade cautioned that a severe escalation in US tariffs—rising to 60 percent on Chinese goods and 10 percent on imports from other countries—could disrupt global trade and hit the UK’s manufacturing sector hard. While the firm described this worst-case scenario as “unlikely,” it emphasized the significant damage such a trade war could inflict, not only on the UK but on the US economy as well. Under this extreme scenario, Allianz forecasts a 1.2 percentage point reduction in US GDP growth and a 0.6 percentage point rise in inflation by 2026. Global trade could also slow by up to 2.4 percentage points.

Even under a more moderate scenario, where US tariffs on Chinese imports are increased from 13 percent to 25 percent, and smaller hikes of 5 percent are introduced for goods from other nations, UK export growth would still face a £2.2 billion decline over two years. This would also lead to a 0.6 percentage point reduction in global trade growth, Allianz Trade said.

However, Capital Economics presented a more optimistic view, suggesting the UK’s direct exposure to a potential trade conflict with the US might be limited. Unlike China, Mexico, or the European Union, the UK does not have a significant trade surplus in goods with the US, with trade in goods being largely balanced. Instead, UK exports to the US are dominated by services, which would likely remain unaffected by tariffs.

Capital Economics estimates that a hypothetical 10 percent tariff on UK goods exported to the US would have only a minor impact on the UK’s GDP, ranging from a slight decline of 0.1 percent to a small increase of 0.1 percent. The firm noted that the UK could benefit from a weaker pound, making British goods more competitively priced in US markets, thus mitigating some of the potential losses.

As global trade tensions continue to rise, the future of UK exports could depend heavily on the outcome of any potential US-China trade escalation.