Donald Trump’s economic policy, focused on ‘America First,’ centres around heavy tariffs and protectionism to bolster U.S. manufacturing. His re-election brings a proposed 60% tariff on Chinese imports and a baseline 10% on all others. These tariffs aim to shift demand toward American-made goods by making imported goods more costly. While this move is designed to benefit U.S. manufacturers and reduce dependency on imports, it also signals a rise in the overall cost of foreign goods, potentially leading to inflationary pressures in the U.S. The Trump administration’s plan also includes revisiting corporate tax cuts, with intentions to lower the rate to 15%, aiming to boost domestic job creation and investment.

Impact on UK-USA Trade and Business Dynamics

The new U.S. tariffs could significantly impact UK businesses reliant on transatlantic trade, particularly those in aerospace, automotive, and pharmaceuticals—sectors that exported £304 billion in goods and services to the U.S. last year. If U.S. import costs rise, the demand for UK exports may decline, with implications for jobs in sectors highly dependent on American markets. Additionally, Trump’s emphasis on domestic production may limit foreign direct investment (FDI) in the UK; currently, U.S. investments make up 34% of all UK FDI. A potential decrease in these inflows could slow growth, especially in areas like technology and finance, which have historically benefited from U.S.-based capital.

For UK firms, the shift may also present a few opportunities, particularly if trade relations with the EU strengthen in response to U.S. tariffs. However, in a scenario of reduced foreign demand and heightened costs, businesses may face an uphill battle to adapt to this challenging new landscape. Here’s how:

Reduced Demand for UK Exports: With tariffs raising the cost of foreign goods in the U.S., demand for UK exports—valued at £304 billion last year—may suffer, particularly for high-value sectors like aerospace, automotive, and pharmaceuticals. Reduced access to the U.S. market would impact sectors dependent on American consumers, likely leading to job losses and revenue dips in these industries.

Lower Foreign Direct Investment (FDI): A focus on onshoring may lead to fewer U.S. firms investing in the UK, given Trump’s aim to keep investment and jobs within American borders. With U.S. FDI currently making up 34% of the UK’s total foreign investment, a decline could slow growth in areas like technology and finance that rely on American capital.

Increased Costs of Imported Goods: Protectionist measures and tariffs could drive up the cost of imports for UK businesses, especially those in manufacturing and consumer goods. Higher costs for raw materials could force UK companies to pass the expenses to consumers, further impacting purchasing power in an inflationary environment.

Will this affect insolvency rates in the UK?

In response to U.S. trade restrictions, the UK might strengthen trade ties with Europe, which could provide some relief to impacted sectors. Industries focusing on domestic demand, like agriculture and energy, might remain more stable and, in some cases, benefit as local products become more competitive.

However, protectionist U.S. measures could drive up global material prices. UK firms in manufacturing, especially those reliant on imported components and raw materials, would likely face elevated production costs and face higher insolvency risks. Firms dealing with slim profit margins may see declining sales and higher operating costs, creating an environment ripe for insolvency, particularly in wholesale and retail.

Plus, industries that rely on consistent U.S.-based investments, particularly technology and finance, may struggle to maintain growth and innovation without the necessary capital. This constraint could lead to downsizing, halted projects, and, ultimately, a higher likelihood of insolvency if capital inflows diminish significantly.

Retail Insights: Small businesses may become increasingly insolvent

UK retailers are facing a £2.5 billion hit in 2025 due to new Labour budget measures, which may reshape the industry. The October 31st budget’s increases in the national minimum wage, employer national insurance, and a reduction in the business rate discount from 75% to 40% will significantly raise operational costs. The British Retail Consortium (BRC) and other industry voices label this budget as one of the most challenging for independent retailers.

With already tight profit margins, retailers are bracing for higher costs while demand remains sluggish. This “triple burden” threatens job creation, limits investment, and could lead to price increases.  Some support is aimed at smaller businesses, such as a rise in the employment allowance, which will offset national insurance increases for those with smaller wage bills. However, larger businesses may be forced to shift focus towards cost efficiency and cash flow management.

Amidst these challenges, the budget also includes a Small Business Strategy, aiming to involve smaller enterprises in future economic policymaking, a move that could offer some industry relief and collaboration opportunities.

As retailers consider passing on some of these cost increases to consumers, they risk suppressing demand even further. With consumer spending already under pressure, price hikes could worsen sales, impacting revenue and compounding financial stress.Those unable to manage these pressures may be forced to close, leading to higher insolvency rates, especially among smaller businesses without significant capital reserves.

Distressed Businesses in Retail | Evans Cycles closes flagship store

A leading bike retailer with 70 locations across the UK is preparing to close its flagship store at The Gateway Shopping Centre in Trowbridge. Opened in March 2022, the site has already posted “closing down” signage and is offering discounts up to 20% as it winds down operations. Shoppers can still visit through the holiday season, but the store is scheduled to close in early January.

Once part of a pre-pack administration sale to Sports Direct in 2018, Evans Cycles has faced ongoing challenges. Many local customers, sharing their thoughts on social media, expressed disappointment but were unsurprised, noting that foot traffic has remained low. This closure is part of a broader trend, with other recent local retail shutdowns, such as Poundland. Frasers Group, which owns Evans Cycles, announced earlier this year that 70 of its stores across the UK would be closing as the company restructures its retail presence.

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