Donald Trump could target the UK with higher tariffs (Image: Getty)
The government has reportedly been wargaming how to respond if the President-elect decides to target the UK.
It comes after Donald Trump threatened to impose a 25% tariff on all goods coming from Mexico and Canada, after being inaugurated on 20 January 2025.
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He also said an additional 10% tariff would be levied on China until its government cracked down on fentanyl drug smuggling to the US.
If Trump follows through, it will mark a major escalation in tensions with the US's three top trading partners.
READ MORE: Britain unleashes biggest sanctions yet on Russia to cripple Putin's war machine
Keir Starmer could impose higher taxes (Image: Getty)
The US is the world's largest importer. China, Mexico and Canada account for about 40% of the $3.2tn (￡2.6tn) of goods it imports each year, according to official data.
His remarks have prompted fears that Britain could be hit next, a move which could trigger a major global trade war.
It is understood that UK officials have told ministers that they can revive a package of measures against the US, Politico reported.
The EU tariffs were carried over after Brexit, having initially been placed on US goods in Mr Trump’s first term in response to his levies on European steel.
They targeted US products such as Calvin Klein, Estée Lauder and American staples such as peanut butter.
Keir Starmer's official spokesman poured cold water on any suggestions of retaliatory tariffs if the UK is targeted.
He said: "We look forward to working with President-elect Trump including on a wide range of his policy priorities to improve the UK-US special relationship, including when it comes to trade and investment.
"I am not going to get drawn on specific policies before he takes office, but clearly the fact that a million Americans work for UK-owned businesses and vice versa and the fact that UK-US trade was worth ￡304 billion in the last year, clearly that is something that we want to build on."
Meanwhile, a senior Bank of England official has suggested that massive US tariffs on Chinese imports could drag down global inflation by lowering the price of goods in other countries.
Swati Dhingra, an external member of the Bank’s rate-setting monetary policy committee, said Chinese exporters to cut their prices elsewhere to ensure they maintained current trade volumes.
“If there is the kind of big 60% type of tariff increase that’s been proposed, that will have repercussions on to world prices, and mostly on the downward direction,” she said.
She said the “textbook” impact of the world’s largest goods importer imposing such a large tariff on products from the world’s biggest exporter would be for global goods prices to fall.
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Chinese firms would respond to tougher trade barriers by attempting to find buyers in alternative markets, which could lead them to lower their prices to sell similar volumes, including in the UK, she said.
“It takes a massive amount of demand out of the world market. The way exporters, say in China, would respond to that would be to respond with prices, world prices, as they don’t want to lose market share,” she said.
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China has defended its efforts to stop the flow of illegal drugs, and has warned that there can be no winner in a trade war between the two.
After Trump made his tariff threat, he discussed trade and border security with Canada's Prime Minister Justin Trudeau, according to a Canadian source who spoke to the Reuters news agency. They had a "good discussion", the source said.
Mexico's finance ministry said: "Mexico is the United States' top trade partner, and the USMCA provides a framework of certainty for national and international investors."