As you’ll likely know, President Trump recently introduced 10% tariffs on all goods imports to the US from the UK (and even higher tariffs on steel and automotive imports). The problem with writing anything about these tariffs is that whatever you write may become rapidly irrelevant. The Trump administration appears to be inconsistent about how permanent these tariffs will be and the markets are banking on them not being permanent. Even when this blog was being finalised there was dramatic reversal of policy, with Trump ‘pausing’ the most punitive tariffs for 90 days – the UK’s, however, remain in place. Meanwhile, as I’m writing this I have one eye on the Guardian’s ‘Business Live’ page, as the situation may change yet again…
Even in the midst of economic turmoil, cool analysis must prevail. As such, we thought we’d look into the how the tariffs may affect different parts of the UK, and where is likely to be hardest hit. If you just want to skip to the map, you’ll find that at the bottom of the page, but first let me walk you through how we got there.
To keep it simple, we’ve created a metric for how affected we think areas will be, based on the value of goods exports to the US as a proportion of local economic activity. Where this is high, a region relies more heavily on goods exports to the US and thus will likely be hardest hit. Of course this is an over simplification – in an interconnected globalised economy, the web of exports and imports is complex and knotty so it is impossible to predict with complete accuracy where the effects will land. And if, as some expect, these tariffs will cause a global recession, everywhere will be affected.
By dividing estimated goods exports to the US by local GVA we create a metric of how badly affected we think each region (or ITL 3 area, to be more specific) will be – although it should be noted that the most recent data is only available for 2022. To make this number a bit easier to comprehend, I’ve normalised it against the median value - a value of below 1 indicates that an ITL3 area relies less on US exports for its economy than the UK average, whilst a value of above 1 indicates that an ITL3 area relies on US exports more than the UK average. As a shorthand, I’m going to refer to this as ‘LATS’ – the ‘Local Area Tariff Sensitivity’ score.
The highest LATS – 10.49 – is for Derby. That is to say, Derby may be 10x more affected by tariffs on goods exported from the UK to the US than the UK as a whole, whilst the lowest is Blackpool at 0.05 – meaning that it is 20x less affected than the UK as a whole. The median is Harrow and Hillingdon, which is defined as being 1.
What is interesting is that when these are graphed, the distribution of LATS scores is very uneven. Almost 80% of ITL3 regions have a value between 0 and 2, and 5% of ITL3 regions have a value above 5. So while most areas will see small direct effects, the consequences for a few areas may be substantial.
By mapping these we can get a sense of the geography of potential impact. As with the bar graph, most of the country is not that affected, but there are a few areas that will be particularly hard hit: parts of the West Midlands, South Wales, and some parts of Scotland (Shetlands, Ayrshire, and Clackmannanshire and Fife, and Orkneys), in particular.
The English Midlands contains two of the hardest hit areas: Derby and Solihull, the highest and fourth-highest LATS score regions. Both of these places have a large automotive manufacturing (and related) presence – Derby is home to both Toyota and Rolls Royce, and Solihull is home to Jaguar Land Rover. We’ve already seen an effect of the tariffs on these areas, with Jaguar Land Rover pausing its exports to the US. The simple model used here does not account for the fact that automotive exports will attract higher tariffs than all other industries (25%, as opposed to 10%), so businesses’ responses may be more radical and it is possible that we have underestimated the local consequences.
Whilst manufacturing makes up two-thirds of the UK’s exports to the US, our map is not simply a depiction of where manufacturing happens in the UK. If we graph manufacturing GVA for each ITL 3 area against its exports to the US, there is a positive correlation (r2 = 0.26), but with a large amount of noise. For example, Tower Hamlets manufactures very little, but exports a large amount to the US, whilst South West Derbyshire manufactures a lot, but exports little to the US. As such, it is not ‘all manufacturing’ for which a policy response will be needed, but rather specific manufacturing sub-sectors.
These tariffs, whether temporary or permanent, show that the economic ripples caused will not affect the UK equally. As the situation continues to evolve, analysis like this gives some indication of where policymakers should target their support. However, many other factors will in practice be in play. Supply chains may well extend over broader areas. More generally, if large manufacturers are affected, the UK’s overall tax-take will be reduced which will affect public finances with probable consequences around the UK. What's clear is that disturbances in global trade have local implications, and understanding these geographical patterns is crucial for navigating the uncertain economic terrain ahead.
For another take on the regional impact on tariffs, the Centre for Cities thinktank has published their own analysis examining how the tariffs will affect UK cities – like us they find that the midlands will be disproportionately affected, with the three cities with the highest proportion of US goods exports out of all exports being Coventry, Derby and Telford.
If you’d like to discuss the method behind this analysis please contact Matthew Timms at mtimms@sqw.co.uk. To understand more about the potential implications of these tariffs on your local area, or an appropriate policy response, please contact Donald Ross at dross@sqw.co.uk.