To reduce the United States (US) trade deficit, Donald Trump’s ‘Liberation Day’ announcement outlined sweeping plans to impose trade tariffs. This distinguishes the Trump presidency as one of the first in recent history to adopt tariffs as a preferred form of political leverage.
Senior Surveyor, James Little, explores what was announced and the potential impact it could have on the real estate market in the United Kingdom (UK).
Donald Trump’s headline announcement was the minimum universal tariff of 10% to all imported goods. For countries charging the US above this threshold, a ‘reciprocal’ charge will be levied against them.
Businesses in the UK will be relieved, in part, to receive the minimum baseline tariff of 10%, which compares favourably to the European rate of 20%.
However, the 25% tariff on all foreign made cars will certainly be a material cause for concern. Indeed, Jaguar Land Rover has temporarily paused all shipments to the US as they assess the impact.
The trade tariffs announced by Trump are unlikely to remain fixed in the near term, with flexibility afforded to the US to vary rates in either direction. This will provide opportunities for political bartering and negotiations.
While the European Union have outlined immediate plans for retaliation, the UK has taken a more measured approach due, in part, to the flexibility afforded by its detachment from the European Customs Union in December 2020.
What impact will trade tariffs have on real estate?
The correlation between the real estate sector and trade tariffs is difficult to interpret in the near term.
If we were to take the logistics sector, as an example, we might expect rising consumer costs to suppress the purchasing of goods, which would affect subsequent demand for distribution centres.
In response, we could see some companies adapt through import substitution. This would create a greater trend of nearshoring and onshoring within the market.
The UK could also become a more desirable manufacturing location, compared with mainland Europe where tariffs are 20%. As a result, there may be an uptick in demand for distribution centres through rerouted trade via the UK, in instances where costs can be saved.
As mentioned in our recent investment market update, investors currently lack incentives to enter the market.
The initial response from the gilt market has been one of contracting yields. Government debt is now offering a ‘flight to safety’ for investors who are redistributing their exposure.
If this trend continues, central bank rate cuts could be realised sooner than expected. Committee members will now consider the rate at which price rises will feed through to consumer goods and the inflationary impacts that could be realised.
A lower interest rate environment is likely to prove desirable for investors redirecting funds away from the US whilst utilising the UK’s real estate sector as a stable hedge against the impact of tariffs.
