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Bloomberg Audio Studios. Podcasts. Radio. News. The Make UK lobby representing manufacturers across Britain says that the tariffs imposed by President Donald Trump are devastating for UK manufacturing. But according to Bloomberg reporting, British officials say that the UK is getting mixed signals on whether this 10% tariff is permanent or not.
and the UK government continues to pursue a UK-US bilateral trade deal. Joining us this morning is Stephen Phippsen, who is CEO of Make UK, the lobby that represents UK manufacturing businesses. Stephen, welcome back to Bloomberg Radio. Thanks for your time. Look, I'll cut to the chase. We know that it's bad. 10% tariffs, any way you slice it. How tough should the British government be with the UK? The indication is not very.
Well, actually, Caroline, what we should be doing is negotiating a deal. So we're fully behind what's happened so far in terms of Keir Starmer trying to really develop that relationship with the US government, which has been very, very impressive so far, and the tireless efforts of the business secretary to try and negotiate. And our push is to try to get a negotiated deal. We don't think it's in anyone's interest.
to try to escalate. And I think in terms of the effect on manufacturing, 10%, you know, sounds reasonable, but don't forget, we've got 25% on our automobile sector, which is really, really challenging. We've got quite a large industry
automotive activity in the UK. We've got the steel tariffs. And of course, the other problem is that a lot of our exports in the supply chain go to the EU. So with the EU at 20%, if those volumes drop off, that has a direct impact on UK manufacturing volumes. So we think the way through this is to really concentrate on trying to see if we can negotiate a deal with the US.
OK, Stephen, you're talking about negotiating. You're obviously not thinking that escalating is the best way out of this. But what does Britain have to concede to bring down these tariffs? Well, that's a very interesting point. I think, I mean, so far, these tariffs have been concentrating, of course, on products. There may be something on the services side, particularly because that's the large import, if you like, into the UK from the US. So we might see where the government goes with that. At the moment, they're not sharing the details of what the negotiations look like.
But they are assuring us that they are making progress. So we get to see the details. Are your members saying anything to you about what possibly should be conceded?
Well, not directly in terms of manufacturing. What they're really focused on at the moment is trying to work through the detail and trying to understand what this effect is going to be. I think it's pretty clear with automotive and there's a lot of concern about what that's going to do to volumes. But of course, many of the other things we're exporting are high technology, advanced manufacturing products to the United States. Many of those companies have never really got involved in tariffs before. So there's a lot of concern about what that's going to do to volumes.
So really, there's a lot of uncertainty at the moment. There's also some big questions, Caroline, I think, which is also worth thinking about, particularly Northern Ireland. I mean, that's a complex situation. We've got a number of really important manufacturing sites in NI. They've now got the situation between two borders, 20% on one side, 10% on the other. The winds of framework. Everyone's unclear as to how that's going to work in this scenario. So there's quite a lot of detail to run through at this stage of the game. We're talking about the initial reactions here.
Yeah, absolutely. Northern Ireland is immensely complicated, isn't it? Yeah, it really is. Because Northern Ireland has effectively stayed within Europe for kind of practical purposes because of the border issue. In terms of...
The overall view, though, I mean, is Britain basically breathing a sigh of relief? 80% of our economy is services led. So, you know, if we have to sacrifice a bit of manufacturing, the government seems to be saying, you know, we're fine with that. You know, let's just, you know, let's hope that the US doesn't think about the kind of services side of the business. Is that the idea? Do you think that the UK will go into a recession? It won't, surely, as a result of this.
Well, again, we have to see the effect on volumes. One thing I would point out, I mean, the government is taking the manufacturing issue very seriously. It's 45% of our exports. So a really important part of the export activity of the UK in terms of a trading nation are manufactured products, most of them advanced manufacturing products, one form or another, from commercial aerospace to defence to luxury vehicles, that sort of stuff.
And so that is, and of course, it creates high quality jobs in the UK and any reduction in volume is a direct effect on jobs. We have 2.6 million people in the manufacturing sector. And it's that effect, really, not just the direct effect, but just to go through that again, Karen, it's that indirect effect of what happens with the EU volumes, which is about half of the exports of manufactured products from this country.
Stephen, we've had analysis from Bloomberg Economics talking about the percent of exports from the EU that are now at risk to the U.S. They see them dropping by nearly 50 percent and even China's exports to the U.S. dropping by 80 percent. You know, these countries are going to try to scramble to figure out where else they can sell these goods. Are your members worried about perhaps the dumping of cheaper goods into the U.K. economy, perhaps putting their business model at risk or under pressure?
Yeah, we are certainly concerned about trade diversion. I mean, we have been experiencing that anyway in the steel sector. And the UK's had a pretty good safeguarding regime that's responded quickly to dumping, for example, of Chinese steel into the UK when steel is diverted from one market which they're restricted from. And we have an open border. And of course, what they're going to have to do now is extend that to look at other products where we have a significant trade diversion effect. So again, we're going to need to...
to really ramp up the response of that agency in the UK to be able to put in the right safeguards, the appropriate safeguards when those issues arise. But we are experienced at doing that in steel, for example.
Europe could well roll out something quite tough against the US. We don't know. Francis Emmanuel Macron urging European companies to pause spending in the US. The UK's got potentially this kind of choice. Does it try to get closer to the EU or end up closer to the US? A lot of people I know say that there isn't a choice, but there surely is. What's your view?
Well, we are stuck between both of them, to be honest with you. And I know the government's been treading a really fine line on this issue. But as I said, we have, you know, the US as a single market is the most important export market for UK goods.
The UK as a bloc is the biggest trading partner. So the massive volumes that go to the EU. So ideally, the government's trying to find this real, really sweet spot, this fine line in between the two to be able to not choose. But you'll hear that phrase constantly from the government, not choosing between one partner and another. And they will continue to try to do that. But I think it's going to be increasingly difficult if we see retaliation from the EU.
Stephen, I just want to pivot the conversation to defense because that's, I guess, an area that not only in the U.K., but also in Europe is likely to be seeing big investment inflows. Is the U.K. manufacturing perhaps make up some of this capacity from the Trump tariffs with defense?
Well, defence is growing anyway, substantially, as you can imagine at the moment. We're seeing some significant growth in the defence sector. We're also very interested in this idea of collaboration across Europe. And there's a lot of discussions around what we might do with other European countries. We've already got experience of doing that. We do that with complex weapons, with missile systems, for example. MBDA would be a very good example of that. We've done it with Typhoon. And there's a real discussion about how to increase that collaboration across Europe. Interestingly...
That might result in actually easing some of the trade barriers that we've got with Europe at the moment, because if you start doing things across border on defence in more volume, you might end up having a better regime for customs and those sorts of things. So it might be a way of easing some of those tensions. But we certainly see demand increasing at the moment. And I think that collaboration across Europe is going to be a good thing for UK manufacturing and defence.
Do you think that there's going to be a major dampening effect in terms of manufacturing as a result of the whole tariff regime? And not just that, the major change in thinking, the rewiring, the entire kind of foundations of the global trading system, the trust being lost. Do you think that that has a dampening effect for your members on what they do?
I tell you what it really has an effect on and that's investment because investment cycles in manufacturing are long. It's between seven and 30 years in terms of investing in new factories, new plant and machinery, those sorts of things.
And in this environment where you're not sure, I mean, with the Trump tariffs, we're not sure if that's going to last a month, six months, a year. Is it going to change? Do you build your factory in the US, the next factory expansion? Do you build it somewhere else? And so people are going to be very uncertain about that investment part, which drives your manufacturing efficiency. And that's going to have a significant dampening effect unless there's some clarity in this in the short term.
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