The headlines related to Donald Trump’s trade war to date have largely all been negative and with total justification.
We’ve heard of the dire impact tariffs are expected to have on the UK and wider global economy from the International Monetary Fund, the toll they are already taking on UK exporters to the United States – especially car, steel and aluminium manufacturers.
Jobs, order books and profitability are threatened and stock markets have lost significant ground, knocking pension and investment values.
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Government borrowing costs have also faced upwards pressure.
But from the understandable depths of despair and frustration felt over the president’s protectionist path, there are also some unintended positives emerging that may help drive down some big bills for both households and businesses alike in the UK.
Oil and fuel
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The surprise news on Wednesday that the US economy had contracted over the first three months of the year – caused by a dash for imports to beat tariffs – drove a decisive blow to oil prices.
They have fallen steadily since Trump 2.0 began in January but the declines accelerated after the “liberation day” tariff bomb was dropped early last month.
Brent crude, the international benchmark, fell 15% in April alone and is currently trading at a four-year low of $60.
Analysts are now openly talking about the prospects for a $55 level, also aided by signals that Saudi Arabia is going to sell more oil.
RAC Fuel Watch data shows average costs of 134.19p-per-litre for unleaded and 140.71p for diesel this week.
Its commentary, on both measures, adds simply: “should fall sharply”.
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Energy
Energy bills have been the main driver of inflation since the 2022 price shock caused by Russia’s invasion of Ukraine.
It’s all linked to the UK’s reliance on natural gas to provide power and heat, forcing up not only bills from suppliers but also raising costs across the economy.
Expectations of weaker demand, due to the trade war, have helped bring down day-ahead UK wholesale costs by 20% in April alone – by almost 50% since February.
Updated forecasts by industry specialist Cornwall Insight last week predicted a 9% decline in the price cap adjustment due to take effect from July and continued declines even into winter.
It is likely that July’s decrease could be even more meaningful given wholesale costs have continued to fall, in line with longer-term contracts.
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Imports
There is a growing swell of opinion that the UK, and others, could become a dumping ground for goods that America has turned her nose up at due to the tariffs.
The thinking goes that big exporters, such as China, will just want to sell off products – that should have gone to the US – on the cheap.
That is not good for domestic suppliers but it should also place downwards pressure on the pace of inflation.
When a member of the Bank of England’s rate-setting committee, Meghan Greene, signed up to this theory in remarks last week (on the basis that the UK does not retaliate to Trump’s tariffs), it prompted financial markets to fully price in an interest rate cut on 8 May.
Interest rates
Interest rates are the medicine, deployed by the Bank, to help keep inflation in check. By raising borrowing costs, or keeping them higher, you look to lower demand in the economy to cool price growth.
Should fuel and energy bills fall substantially given the recent trends, and wage growth continue to ease amid shaky confidence in the economic outlook, pressure on policymakers to keep Bank rate elevated falls away.
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Financial markets are currently seeing almost four interest rate cuts to come this year.
That would take Bank rate from 4.5% to 3.5% by December.
Such a cut, alongside reductions to fuel and energy bills, would represent a big win for households and businesses alike in very uncertain and expensive times.
