Under threat of Trump tariffs, UK posts rare goods trade deficit with US

By Andy Bruce

(Reuters) - Britain entered a rare deficit in its goods trade with the United States at the end of last year, according to data published on Thursday that London will hope bolsters its case against the imposition of new tariffs by President Donald Trump.

The Office for National Statistics said Britain's goods trade balance with the U.S. showed a deficit of 164 million pounds ($205 million) in the fourth quarter, compared with a 713 million-pound surplus in the third quarter.

Excluding big swings seen during the height of the COVID-19 pandemic, it marked the first goods trade deficit with the U.S. since 2011.

Since returning to office last month, Trump has initiated numerous tariffs and made threats to impose more levies, targeting countries that export more to the U.S. than they import.

Britain and the United States trade hundreds of billions of dollars' worth of goods and services annually, but London hopes that ambiguities in the data will help to earn an exclusion from Trump's tariff plans.

Earlier this month, Trump said he thought something could be "worked out" with Britain on the threat of tariffs, but later complained that the United States had a "huge" trade deficit with its historical ally.

In fact both countries report overall trade surpluses with each other - including goods and services - owing to measurement differences. British Prime Minister Keir Starmer hopes this will work to his advantage.

Machinery and transport equipment account for the biggest chunk of goods imports and exports between Britain and the United States, according to the ONS, while the U.S. is a major source of fuels for Britain.

Thursday's data underlined Britain's shift towards services trade. Goods exports performed badly again in the fourth quarter - especially to its former partners in the European Union.

After adjusting for inflation, Britain exported just 13.6 billion pounds of goods to the EU in December. Excluding the pandemic, it was the weakest reading since November 1997, not long after monthly records started.

By contrast, British goods imports from the EU have been largely stable since Brexit. 

That means Britain's large goods trade deficit with the EU - a bone of contention among proponents of Brexit - has widened since Britain left the bloc, hitting an inflation-adjusted record of 32.9 billion pounds in the fourth quarter.

Overall trade during the fourth quarter was a net drag on Britain's economy but other factors, including higher government spending and a run-up in inventories, helped it to unexpectedly eke out growth of 0.1%. Economists polled by Reuters had expected a 0.1% decline.

"The trade deficit will likely remain wide in 2025 as rising wholesale energy prices raise import costs and President Trump's tariff threats undermine global trade," said Elliot Jordan-Doak, senior UK economist at Pantheon Macroeconomics consultancy.

Bank of England Chief Economist Huw Pill said in an interview with Reuters published on Thursday that higher U.S. import tariffs would not automatically lead to higher inflation but could have "quite substantial effects" in the longer term.    

($1 = 0.8003 pounds)

(Reporting by Andy Bruce)