Understanding Tariffs: A Simple Guide for UK Investors | Impact on Share Prices
Published: 4 April 2025
Since Donald Trump has returned to the White House, there has been a lot about Tariffs in the news and a fair bit of confusion as to what they are, who pays them, and how they affect us all.
In this beginner-friendly guide, we try and unpick what this means for a UK investor.
What Are Tariffs for UK Investors?
Tariffs are import taxes that a government places on goods coming from other countries. Think of them as a special kind of tax only applying to foreign products, directly impacting UK share prices.
When Britain imports cars from Germany or electronics from China, the UK government might add a tariff – an extra cost – to these products before they can be sold in British shops.
Who Actually Pays Tariffs?
When a tariff is placed on a product:
Initially, the importing company pays directly to their government.
The company often raises prices to cover this extra cost.
End customers usually bear the final cost through higher prices.
A Simple Example
If the UK puts a 10% tariff on French cheese:
A wheel of Brie costing £10 to import now costs £11 with the tariff.
The importer raises the wholesale price to maintain profit margins.
Your local supermarket increases the shelf price.
You pay more for your French Brie.
UK Tariff History
1700s-1800s: Britain used protectionist tariffs to shield growing industries.
EU Membership (1973-2020): Britain operated under the EU's Common External Tariff.
Post-Brexit (2021-present): the UK implemented its own UK Global Tariff (UKGT).
Recent years: new trade agreements with Australia, Japan and other nations have reduced many import tariffs.
Benefits of Tariffs
1. Protecting British Jobs and Industries
When foreign products become more expensive due to tariffs, UK-made alternatives become more competitive. This helps protect British jobs in industries facing cheap foreign competition.
2. Government Revenue
Tariffs provide money for the government without directly taxing citizens. This revenue funds public services like the NHS, schools and infrastructure.
3. National Security
Some industries are essential for national security. For example, Britain might want to maintain its own food production rather than becoming completely dependent on imports.
Downsides of Tariffs
1. Higher Prices in UK Shops
The most direct downside is that tariffs generally lead to higher prices for British consumers, reducing purchasing power.
2. Less Choice for UK Consumers
If imported goods become too expensive due to tariffs, shops might stop stocking them altogether, limiting consumer choices.
3. Risk of Trade Wars
When Britain imposes tariffs, other countries often respond with their own tariffs on British goods. This can escalate into a "trade war" that hurts businesses and consumers on both sides.
How Tariffs Impact UK Share Prices
Tariffs cause significant movements in stock prices, creating both risks and opportunities:
Positive Effects
Protected Industry Boosts: when tariffs shield British companies from foreign competitors, their share prices often rise. For example, tariffs on imported steel might boost Severfield shares.
Competitive Advantage: companies struggling against cheaper imports may see improved profit forecasts when tariffs level the playing field.
Negative Effects
Cost Increases: companies relying on imported components often see share prices fall when tariffs increase production costs. UK car manufacturers importing parts could see profit margins squeezed.
Export Barriers: British companies exporting to countries imposing retaliatory tariffs might see significant share price drops.
Market Uncertainty: trade tensions can create general market uncertainty, sometimes causing widespread share price declines.
Real Example
After Brexit, UK retailers with complex EU supply chains saw share price volatility due to uncertainty about future tariff arrangements.
Current UK Tariff Situation
The UKGT has created new dynamics for investors in the London Stock Exchange:
Simplified tariff system makes forecasting easier for investment analysis.
Reduced tariffs on many imports lower costs for importing companies.
New trade agreements create export opportunities for UK firms.
Evolving EU relationship creates potential volatility for EU-dependent businesses.
Investment Tips for Navigating Tariffs
Research supply chains in company reports – businesses importing over 30% of materials face higher tariff risks.
Consider UK alternatives to import-dependent stocks – companies with local supply chains often perform better during trade tensions.
Diversify across sectors with different tariff sensitivities – balance retail (high import exposure) with utilities (low import exposure).
Monitor pound fluctuations alongside tariff news – currency changes create additional impact on import-reliant companies.
Conclusion: Making Tariff-Smart Investment Decisions
Tariffs directly influence UK share prices and investment returns. .By understanding how these import taxes work, you can better position your portfolio.
Remember these key points:
Tariff changes create winners and losers in the stock market.
Brexit has transformed Britain's tariff landscape.
Supply chain analysis is crucial when evaluating tariff vulnerability.
UK-focused companies often provide safer havens during trade disputes.
As a British investor in 2025, staying informed about the UK's evolving trade relationships is essential for maximising returns, while managing risks from tariff changes.