A decade after Donald Trump first rattled global markets with his tariff wars, the former president is back, and the China he confronts is not the same supplicant of 2017. Beijing has spent ten years fortifying its economic ramparts, diversifying supply chains, and reducing its reliance on Western technology. For the UK, already walking a tightrope between the US and China, this seismic shift demands a cold-eyed reassessment of trade policy. The question is not whether the old strategy holds, but whether London can afford to remain caught in the middle.
China’s resilience is evident in the data. Its GDP, though slowing, remains on a trajectory that overtakes the US in purchasing power parity terms within the decade. More crucially, its manufacturing dominance has deepened: it now accounts for over 30% of global value-added output, up from 25% a decade ago. The ‘Made in China 2025’ initiative, which Trump derided, has quietly succeeded in sectors like electric vehicles, where Chinese firms now command 60% of the global battery market. The result is a China that is less vulnerable to external coercion. Its foreign exchange reserves, while down from 2017 highs, still exceed $3 trillion. Its capital controls remain robust, limiting the capital flight that Trump’s tariffs once threatened to trigger.
For the UK, this presents a dilemma. Post-Brexit trade agreements with both the US and China were heralded as ‘global Britain’s’ crowning achievements, but they have delivered tepid results. UK exports to China have grown by only 2% annually since 2020, while imports from China have surged. The trade deficit has widened to £45 billion. Meanwhile, the much-touted US-UK trade deal remains elusive. Trump’s return, with his ‘America First’ agenda, will likely demand concessions on agriculture, digital services, and pharmaceuticals that London has been reluctant to grant. The City of London, still a hub for Chinese renminbi trading, is also vulnerable. If Trump threatens sanctions on Chinese banks, the UK’s financial sector could be caught in the crossfire.
The Treasury’s fiscal calculus is equally precarious. Higher tariffs on Chinese goods would feed through to UK inflation, already sticky at 4.5%. The Bank of England would face pressure to keep rates higher for longer, raising gilt yields and increasing the cost of servicing the national debt. Government borrowing, already at £120 billion this year, would become more expensive. This is the market’s cold logic: a trade war is a tax on consumers and a drag on growth.
The optimists argue that the UK can triangulate. It can deepen trade ties with the Indo-Pacific, leveraging CPTPP membership, and position itself as a bridge between the US and Europe. But this ignores the reality that the US is the UK’s largest single export market, and any disruption would be painful. China is the second largest. The margin for error is slim.
Ten years ago, Trump’s assault on China was met with a strategy of patience and multilateralism. That approach is now obsolete. The UK must decide: does it double down on the US alliance, accepting the costs of decoupling, or does it hedge its bets, seeking new agreements with a China that is stronger but also more prickly? Either path carries risk. But standing still is the most dangerous option of all. The markets are watching, and they do not forgive hesitation.
