Trump Farquaad’s tariffs
Peter McGahan
Monday 10th February, 2025
SAT in an armchair writing this very column, with my daughters in Germany in 2001, I watched Lord Farquaad in Shrek, not realising it was probably a training programme for today’s US elections.
Complete with eyes squinting like he is still on his sunbed, reading out what his script writers have said about billions of exploding condoms, and whatever else they laugh about to get him to read, I look behind him and there are his people holding Shrek cue cards up like ‘casual applause’, ‘revered silence’ and ‘laugh’.
Laugh is all I can do when Trump speaks, but someone needs to tell him that Lord Farquaad isn’t Simon Sinek. His signalling out and division of society, dosed up on wrestling and opioids, is unhelpful in a functioning society. Stop it.
What however, will his tariffs and mutterings do for our ‘dosh’, our houses, interest rates, ISAs and pensions here?
Trump tries to create the mind-numbing argument of ‘us and them’ and ‘we will hurt the Chinese by increasing their prices’. Bless him and his dance moves. The prices will leave China the same (they get the same money for it) and the tariffs are applied in the USA, creating inflation and hurting your electorate. Dance on.
Trump’s ‘tariff war’ is back, his economic storytelling, which sounds great on stage (see cue cards above), quickly fall apart when it meets reality. The idea that tariffs will “make America rich” has been tested before, and the results were higher prices, disrupted supply chains, and a fair bit of global economic misery. It’s potentially all about leveraging and threats to get what they want and shut down and control narratives like TikTok. Yawn.
In reality, the US economy is less reliant on imports on goods than many think (around 11 per cent of GDP), so tariffs will have a limited inflationary impact (a 20 per cent rise in ALL imported goods prices is 2.2 per cent overall inflation – not insignificant, but it’s an extreme rise).
His policies aren’t just aggressive; they’re chaotic. His own Treasury Secretary was caught off guard when Trump scrapped exemptions and slapped Canada and Mexico with 25 per cent tariffs before backtracking days later. He justified the move by blaming fentanyl, immigration, and trade deficits, even inflating the US-Canada deficit by a factor of four. The message is clear: Trump is making up the rules as he goes along, and that uncertainty can hit UK households.
For UK consumers, the biggest hit could come through inflation. When tariffs go up, goods become more expensive, not just in the US but everywhere. The UK relies on global supply chains, and a disruption anywhere in that chain feeds through to prices on the shelves. The cost of cars, electronics, and even food could see upward pressure. At the same time, a trade war has a habit of unsettling markets, which can weaken the pound. A weaker pound means imported goods become more expensive.
For homeowners, the picture is murky. At first glance, tariffs don’t seem like they should affect UK house prices, but they could. Higher inflation could affect the pace and degree at which the Bank of England reduces interest rates so mortgage rates might remain onerous a tad longer. If Trump follows through on his threats against Europe, UK trade and investment flows could suffer collateral damage.
One of the biggest drivers of inflation is the Ukraine war which he said he would “end within 24 hours of taking the oath or before inauguration”. I’m waiting…and will be. Yawn.
The US and China have already started tit-for-tat moves, with Beijing announcing new tariffs on US LNG, coal, and rare metals, as well as an antitrust probe into Google. China has also taken steps to defend the renminbi, holding its exchange rate steady despite pressure from a stronger dollar. Beijing may have no choice but to weaken its currency, triggering more market turbulence. UK pension funds, which hold a mix of US, European, and Asian assets, will be watching.
Trump’s economic logic is a mix of old-school protectionism and miscalculated bravado. Tariffs are a tax on consumers, plain and simple. They don’t bring wealth; they just shuffle the costs around and leave people paying more for the same goods.
The biggest mistake anyone can make is reacting to political theatre rather than economic fundamentals.
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Peter McGahan is the Chief Executive Officer of Independent Financial Adviser Worldwide Financial Planning. Worldwide Financial Planning is authorised and regulated by the Financial Conduct Authority.
