Rachel Reeves has indicated that the UK is not planning to impose retaliatory tariffs on the US in response to Donald Trump’s announcement of a 25% tariff on all car imports, which has caused a significant drop in carmaker shares globally.
“Currently, we do not wish to escalate these trade wars,” the UK chancellor told Sky News when asked about the possibility of retaliatory tariffs against the US. “Trade wars benefit no one.”
Reeves stated in a BBC interview that escalating tariffs would adversely affect Britain “but would also harm the US, which is why we are working diligently over the next few days to secure an advantageous deal for Britain.” She emphasized, “We do not want to engage in a trade war.”
Trump, speaking from the Oval Office, mentioned that the tariffs “start from a 2.5% baseline, where we currently are, and move up to 25%.”
The new tariffs on cars and light trucks are set to take effect on 3 April, just a day after Trump plans to announce reciprocal tariffs targeting the nations contributing to the majority of the US trade deficit.
Following Trump’s announcement, shares of US carmakers fell in after-hours trading, with General Motors down by 6.2% and Ford decreasing by 4.7%.
Cars represent the UK’s largest goods export to the US, amounting to £6.4bn in sales in 2023, driven by manufacturers like Aston Martin, Jaguar, and Land Rover.
On Thursday morning, Aston Martin was the largest loser on the FTSE 100 index in London, with shares dropping 6% to an all-time low of 67p. The FTSE 100 index itself declined by more than 50 points.
Automakers pushed European shares down to a two-week low. Volkswagen experienced a 3.6% drop, being particularly exposed to tariffs due to its significant supply chain in Mexico and lack of US production for its Audi and Porsche models.
The Dax benchmark index in Germany, a major supplier of cars and car parts to the US, fell by 1.6%.
Stellantis, the parent company of Chrysler, plummeted by 6.4%, while Mercedes-Benz lost 5.5%, BMW fell by 3.9%, and Porsche slipped by 4.2%. Additionally, Volvo Cars and the parts manufacturer Continental each saw declines of about 2.5%.
Asia mirrored this trend. In Japan, Toyota Motor shares dropped by 2%, Honda Motor fell by 2.5%, and Nissan Motor decreased by 1.7%, contributing to a 0.6% decline in the Nikkei index. In South Korea, Hyundai Motor shares fell by 4.3%, just days after the company attempted to appease Trump with a $21bn investment announcement in the US.
The UK’s Society of Motor Manufacturers and Traders has called for enhanced government support, citing another decline in output. CEO Mike Hawes remarked, “These are concerning times for UK vehicle manufacturers, with car production dropping for 12 consecutive months amid rising trade tensions and weak demand.”
He urged both the UK and US governments to “immediately collaborate to reach a deal that benefits everyone.”
Reeves mentioned that the government may assess an electric vehicle incentive program that has provided subsidies to Tesla, which is owned by Trump’s senior advisor Elon Musk. Recently, Canada halted rebate payments to Tesla.
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As a company that exclusively markets electric vehicles (EVs), Tesla can sell excess credits to automotive firms that struggle to meet government mandated EV sales targets.
“We are reviewing the zero-emission vehicle mandate, which is why some of that funding goes to Tesla, and exploring how we can better support the UK car manufacturing sector,” Reeves explained.
When asked if Britain could rescue automakers like Jaguar Land Rover, Rolls-Royce, and Aston Martin from tariffs, she responded, “That’s what we’re striving for. We have a few more days of negotiations ahead of the imposition of these tariffs.”
Trump’s announcement quickly faced criticism from the EU and Canadian Prime Minister Mark Carney, who labeled it a “direct assault” on Canadian workers. European Commission President Ursula von der Leyen characterized the action as “detrimental to businesses and even worse for consumers.”
The new tariffs could raise the cost of a US vehicle by thousands of dollars, considering the complex manufacturing networks connecting Canada, Mexico, and the US.
Germany’s economy minister, Robert Habeck, called for the EU to respond decisively to Trump: “We must make it clear that we will not sit idly by.”
