UK faces 10% US tariff despite Starmer’s tech tax concession

Offering concession on digital services tax didn’t spare the UK

The UK is hit with 10% tariff on exports to the US, despite Prime Minister Keir Starmer’s last-minute effort to ease tensions by offering tax relief to large American tech firms.

The tariff is part of a broader trade crackdown by President Donald Trump and applies to several US trading partners.

Ahead of Trump’s 2nd April tariff announcements which he dubbed “Liberation Day,” The Guardian reported that UK government attempted to lower its digital services tax (DST) to appease Washington. The DST, which targets tech giants such as Google, Apple and Amazon, currently raises around £800 million annually. Rather than scrapping the tax entirely, the government sought a compromise by cutting the headline rate. However, the move failed to prevent the new tariffs.

The UK is now among the countries affected by Trump’s measures, though its 10% tariff is lower than the 20% rate imposed on the European Union and well below the 34% levied on China and Japan’s 24%. British car exports face an additional 25% duty in what is likely to deal a significant blow to the automotive sector.

Trump justified the tariffs as “reciprocal levies” designed to counter foreign trade barriers and restore American jobs. Critics argue that these measures will exacerbate global economic instability.

Economic fallout and market reaction

Financial markets reacted negatively to the tariff announcement. London’s FTSE 100 Index dropped in the opening hours of trading this morning by 1.4%. Europe’s Stoxx 600 index dropped 1.6% early Thursday as traders evaluated the impact of new U.S. tariffs. Bank stocks on the index had fallen 3.2%, while technology shares declined 2.6%.

Ahead of the tariff announcements, hedge funds had begun to dump their tech stock due to rising global market uncertainty and nervousness about debt to earnings ratios.

Despite fears that the tariffs could fuel inflation in the UK and force businesses to pass higher costs onto consumers, Business Secretary Jonathan Reynolds told Sky News this morning that the “UK is in a 'better position’ than other countries.

The UK government has signalled its intention to avoid immediate retaliation but emphasised that all options remain on the table.

Addressing industry executives at Downing Street Thursday morning, Keir Starmer acknowledged that "clearly there will be an economic impact" from the Trump tariffs. The Prime Minister adds that the UK will respond with "cool and calm heads" and will “fight” to secure a deal with the US to cushion the impact of tariffs.

China and EU vow retaliation

China and the European Union have signalled plans to counter the US tariffs. Beijing called on Washington to cancel what it described as unilateral trade restrictions. The Chinese Ministry of Commerce vowed to take "resolute counter-measures" to protect its interests, criticising the tariffs as a “unilateral bullying practice."

The European Commission also warned of potential retaliation if negotiations fail. President Ursula von der Leyen stated that the EU is preparing further countermeasures to protect European industries from the economic fallout.

With global trade tensions rising, the UK government now faces pressure to navigate the economic challenges while maintaining key trade relationships.