Trump tariffs: What does the trade war mean for your money?

The last week or so has been a worrying time for many households. 

We started the month with what was termed “Awful April”, as water bills, energy prices and council tax all went up. 

But on top of that, we’ve seen President Trump shake up the established world order by imposing new tariffs - taxes on imported goods - on all items entering the US. 

The UK hasn’t emerged unscathed, as the US has imposed a 10% tariff on British goods, as well as 25% tariffs on all car imports. 

President Trump argues that tariffs will encourage people in the US to buy more US-made goods, boost its economy and increase tax revenue. 

But the move has sent shockwaves through the global economy, with stock markets all over the world tumbling alarmingly in the last few days. 

And that means it could affect the money in your pocket… 

Businesses might have to put up prices 

Companies that bring goods into the US will be hit with extra costs, as they’ll be the ones who have to pay the tariffs. 
 
In order to cover these extra costs, they might pass them onto consumers by putting up prices. 

So over the coming months, you could see the cost of everything from food and clothes to cars and electronics edge upwards. 

Unsurprisingly, many people in the UK are already worried about what the US trade war could mean for their money. 

A survey by More in Common found that: 

• more than two-thirds are worried about the tariffs 
• more than half think tariffs will drive up the cost of living 
• almost half think tariffs will hit economic growth 

Meanwhile, a separate poll by City AM/Freshwater Strategy found that three-fifths of UK voters are worried about how the trade war will affect their personal finances. 

And in many cases, that’s because they think it could make their current financial difficulties even worse. 

Figures showed that:

• nearly four in 10 are “impacted” or “troubled” by their low budgets  
• over one in 10 are either missing essential bills or falling further into debt to pay them 

So further price rises are the last thing hard-pressed households in the UK need right now. 

Interest rates could go up 

Price rises could push up the rate of inflation - and that might, in turn, drive up interest rates. 

The Bank of England can put up interest rates if it wants to tackle inflation. 

And that can directly affect borrowing costs for loans, such as mortgages and credit cards, as well as returns on savings. 

The Bank of England had been slowly cutting interest rates since last August, but last month, it voted to keep them on hold at 4.5%, partly because of the uncertain economic backdrop. 

Your pension could be worth less 

If you have a defined benefit pension, changes in the stock market won’t affect your retirement income. 

But if you’ve got a defined contribution pension, your pension pot will rise and fall in line with the financial markets. 

So, the stock market falling over recent days could mean that your pension is worth far less than it was a week ago, unless you’ve bought an annuity that protects you from market fluctuations. 

If you’re a long way off retirement, time is on your side, as the markets usually pick up from periods of turbulence, as we saw after the 2008 global financial crisis and the Covid-19 pandemic. 

But if you’re planning or hoping to retire soon, you might find yourself forced to delay taking your pension and waiting for its value to recover. 

What has the UK government said? 

The government is currently working on a trade deal with the US that could lead to reduced tariffs. 

But prime minister Sir Keir Starmer has said a deal will only be signed if it’s in the national interest. 

Significantly, many Brits are against the idea of the government making concessions in exchange for lower tariffs. 

For example, More in Common found that nearly two-thirds would oppose chlorinated chicken being allowed in UK supermarkets. 

So it will be interesting to see the outcome of any negotiations and whether they’ll land well with the British public. 

After President Trump’s tariff announcement, Sir Keir said that a “trade war is in nobody’s interests” and that the UK would take a “cool-headed” approach. 

But the government has also said it’s “ruled nothing out” and suggested it could respond by placing its own tariffs on US exports. 

In fact, it’s currently consulting with businesses on increasing British tariffs on US imports and has drawn up a 417-page list of US products that could be hit with extra charges. 

This consultation is running until the beginning of May, so we may have to wait until then before we have a clearer idea of what the government will do next. 

One thing’s for sure though, we’ll be hearing the word ‘tariffs’ a lot in the coming weeks and months.