The pound fell sharply and the FTSE 100 suffered its worst session in months after Donald Trump threatened to impose 100% tariffs on European imports in retaliation for the region’s digital services tax. The former president made the warning during a rally in Michigan, vowing to hit “countries that are ripping us off” with punitive trade measures if he returns to the White House.
The threat sent shockwaves through financial markets. Sterling dropped 1.2% against the dollar to a three-month low, while the FTSE 100 closed 2.8% down, wiping billions off the value of London-listed companies. Export-heavy sectors such as automotive, aerospace and luxury goods were particularly hard hit. Shares in Rolls-Royce, British American Tobacco and Unilever all slid by more than 4%.
At the centre of the storm is the European Union’s digital levy, which imposes a 3% tax on revenues from online advertising, social media and data sales for large tech firms. Trump’s team argues the tax unfairly targets US giants like Google, Apple and Amazon. The proposed 100% tariff would effectively block all European exports to the United States, a market worth £300 billion a year to British businesses.
For workers in the North of England, the threat strikes at the heart of communities already battered by decades of deindustrialisation. In towns like Burnley and Barnsley, aerospace and automotive supply chains employ tens of thousands. A full-blown trade war would risk jobs, push up prices for consumers and strain household budgets already squeezed by soaring energy bills and mortgage costs.
“This is a disaster waiting to happen,” said Diane Booth, a union representative at a parts plant in Sheffield. “We’ve just started to see a bit of stability after Brexit. Now this. Our members are terrified.”
The British government moved quickly to try to calm nerves. The Prime Minister’s spokesman said the UK was “working closely with allies” to resolve the dispute and stressed that trade negotiations were ongoing. But No 10 stopped short of condemning the tariff threat, a sign of the delicate balancing act required when dealing with a volatile US president.
The US is the UK’s largest trading partner, accounting for 19% of all British exports. The Confederation of British Industry warned that the tariffs would be “catastrophic” for growth, with the hit to GDP could be as high as 1.5% if the dispute escalates. Small businesses, which rely on transatlantic trade for a significant chunk of revenue, would be the first to feel the pain.
On the high street, the impact is already being felt. Tumbling sterling makes imports more expensive, pushing up the price of everything from electronics to food. The British Retail Consortium warned that further weakness would pass through to prices within weeks, adding more pressure to an inflation rate that is still above the Bank of England’s target.
Meanwhile, analysts say the economic storm could have political consequences. The threat of job losses in key marginal constituencies across the Midlands and the North could shift voter sentiment ahead of the next general election. Labour has seized on the issue, accusing the government of failing to protect British industry. “The Prime Minister is asleep at the wheel while workers’ livelihoods are on the line,” said a spokesman for Sir Keir Starmer.
For now, the markets are bracing for more volatility. The pound is expected to test new lows if Trump’s rhetoric escalates. The FTSE 100 could fall further, dragging down pension pots and investment portfolios. And for the millions of people across Britain who have little to do with high finance, the simple reality is that bread, milk and petrol are about to get more expensive.
As one factory worker in Wolverhampton put it: “They talk about trade wars and digital taxes. To me, it’s just another reason to worry about putting food on the table.”
