A (very brief) reflection on the (possible) Impact of U.S. Tariffs on Regional Exports

Before taking redundancy from WMGC, one of my final projects was analysing the potential impact of tariffs on West Midlands (WM) exports. Having spent much of my career in the 'Department for Difficult Questions'—otherwise known as Policy—I’ve worked on many such briefs, distilling complex economic issues into something simpler.

With the recent U.S. announcement of a 25% tariff on cars, framed as a response to VAT differentials, I thought it was worth revisiting some key findings from my research. While this is a simplified summary, it highlights important policy considerations.

The Cost vs. Effect of Tariffs

For context, the total value of UK Car Exports is around £32bn worldwide. Using the West Midlands as an example, the region's exports span various industries, though the Machinery, Transport, and automotive sector dominates. The West Midlands exported around £7.2bn to the USA, of which £5.7bn (79%) was machinery and transport. Based on public data, a basic calculation (and I mean basic) would suggest that:

• A 25% tariff on WM-made cars could add approximately £1.4bn in extra costs for U.S. consumers.
• A subsequent 10-30% reduction in demand could see WM automotive exports to the U.S. fall from £5.7bn to between £5.2bn and £4bn.

Of course, tariffs rarely act in isolation—additional levies on machinery or goods could further complicate the picture. However, we should also consider this: WM's total exports are around £50bn.

The main problem is that the tariffs come at a time of increased pressure on firms. Increased taxes, regulatory burdens, political uncertainty, and a challenging labour market mean that tariffs are not easy to shrug off.

Part of the challenge is developing an effective response. How can we ensure that the changes in the global economy do not result in the loss of effective firms, skilled labour, and decent employment in the region?

A Broader Perspective: Why Tariffs Aren’t the End of the World (if You Believe in Services)

Within the UK, the development of an effective National Industrial Strategy and a clear approach to Local Growth Plans should form the basis for support. This is not about preserving industry but rather utilising our economic assets to deliver what will be needed in the future.

From supporting EV production in the UK to meet domestic demand, creating the conditions for innovation partnerships to use regional industrial assets to support our defence needs, or utilising the expertise in developing new goods and services worldwide. This is not about the 'death of industry' but actually supporting sectors to adapt, including the increasing importance of servitisation to the automotive industry and using these changes to focus on other markets. The priority should be increasing productivity, enhancing service-sector value, and enabling industries to pivot towards future growth opportunities.

More importantly, a long-term focus should be on exporting services, particularly intermediate services. The UK % for service exports of total exports is around 49%. London is higher at 79%, but both the West Midlands (33%) and East Midlands (27%) are considerably lower, with only Wales (30%) lower still.

Growing exports is a path to better-paid, higher-value, and more inclusive economies, but growing a better and stronger export offer for services is as valid as exporting goods. Use the assets you have as a springboard rather than seeing them as a legacy to preserve and protect.

#Trade #Economics #Policy #Exports