Embattled chancellor Rachel Reeves has begged Donald Trump not to impose crippling tariffs on UK car exports next week.
It comes as business secretary Jonathan Reynolds urged colleagues to “keep cool heads” amid growing concerns that a trade war will create a black hole in the UK accounts. The fears come just as the chancellor had imposed eyewatering cuts on benefits to balance the books.
Ms Reeves disclosed the government is in emergency talks with the US to stop the levy, which is due to take effect next Wednesday.
But the Office of Budget Responsibility (OBR) has warned that the £10bn of headroom she created to give herself some flexibility to deal with unforeseen events will be wiped out if tariffs come in on Wednesday next week.
In a stark warning against counter measures, OBR chair Richard Hughes warned that “in a worst case scenario” if the UK were to retaliate the country would lose 1 per cent of GDP.
President Trump’s announcement of a 25 per cent tariff on all car imports, including from the UK, is another setback to the chancellor after widespread criticism of her spring statement.
Ms Reeves told BBC Radio 4’s Today programme the UK is in “intense negotiations at the moment with our US counterparts” over “cars and steel and every other type of tariff”.
She added: “[Negotiations have] been ongoing since our prime minister, Keir Starmer, went to the White House to meet the US president just a few weeks ago. Those talks continue.”
Asked if the talks could lead to exemption for UK-based car companies, she replied: “Well, that’s what we’re working on. We’ve got a few more days left of those negotiations before these tariffs are due to come in.”
She said Mr Trump was “rightly concerned” about countries with large trade surpluses with the US. But she added: “The UK is not one of those countries. We do not run a surplus with them.”
The vehicle tariffs are the latest threat to Ms Reeves’s economic plans, which are under fire from experts after her package of announcements on Wednesday.
Around four out of five cars made in the UK are exported, and 16.9 per cent of UK car exports were to the US last year.
In an attempt to avoid being drawn into a trade war with the US, Ms Reeves told Sky News: “We’re not at the moment at a position where we want to do anything to escalate these trade wars.
“Trade wars are no good for anyone. It will end up with higher prices for consumers, pushing up inflation after we’ve worked so hard to get a grip of inflation, and at the same time will make it harder for British companies to export.”
She went on: “We are looking to secure a better trading relationship with the United States. I recognise that the week ahead is important. There are further talks going on today, so let’s see where we get to in the next few days.”
Figures from industry body the Society of Motor Manufacturers and Traders (SMMT) show the US is the second largest export market after the European Union for cars built in the UK.
Jaguar Land Rover could be one of the UK vehicle manufacturers most affected by tariffs.
But speaking at an event at Chatham House, business secretary Jonathan Reynolds urged people to keep their cool.
“With the US, we’ve said that obviously we have a different set of views to where they’re coming from… you can understand and engage with that even if you don’t necessarily agree with it,” Mr Reynolds told the conference.
Decisions in the US come from a “belief on their side that it hasn’t got the right tools to deal with particularly overcapacity, and overproduction in some key sectors”, he said.
“This is a time for cool heads and pragmatism and this is how we’re approaching these things.”
The minister admitted that there were “concerns and tensions”, but also said that “the basis of a UK trade strategy has got to be in the UK’s national interest”, adding: “I can’t fight battles for other countries.”
Meanwhile, Tory shadow chancellor Mel Stride said it is “very important” that the UK has a trade deal with the US which “means we are protected from those tariffs”.
He told ITV’s Good Morning Britain: “I think it’s a balance between we want to make sure that we have the right relationship with America on all sorts of levels, including security as well as economic, in order to make sure we get the very best for our country.”
The Liberal Democrats, on the other hand, have called on the government to “toughen up” and introduce retaliatory tariffs on US carmakers like Tesla.
The party’s deputy leader Daisy Cooper told BBC Radio 4’s Today programme: “I think there’s only one language that Donald Trump understands, and that is the language of strength.
“What we Liberal Democrats are very concerned about is that the government strategy so far seems to be to cower in the corner and just ask Donald Trump to be nice to us, and just to hope that he doesn’t do anything nasty.
“That is not a strategy. So, we think the government needs to toughen up.
“We think the government needs to start preparing for retaliatory tariffs, and that those tariffs, that preparation, should start by looking at putting tariffs on Tesla cars, because clearly Elon Musk is a huge backer of Donald Trump, and that’s where we would start.”
