Trump's Scottish links may bring no special favours
2025-01-21
Category: economic

The early hours of the second Trump term were focussed, as expected, on his domestic audience, with action on immigration and America's culture wars to the fore.In the rest of the world, the impact of second time around will surely be significant, but we'll have to wait longer to see if his campaign rhetoric feeds through to action.There are a number of areas where his statements, actions and silence are most likely to affect non-Americans. From here in Scotland - the country of his mother's birth, remember - top of the list is trade and tariffs.
President Trump deployed tariffs during his first term to hit China with penalties for under-cutting America's steel and aluminium industries. President Biden retained them, as they were popular with his labour union voters who see tariffs as protecting jobs.Trump also used tariffs in 2019 against the EU, then including the UK, to back up a long-running dispute over subsidies for aircraft-makers Boeing and Airbus. Closer to home, his trade negotiators targeted the Scotch whisky industry, among others, with a 25% tariff on single malts.That meant that the importer of every bottle arriving at an American port was charged 25% of its value as a tax. As with most tariffs, most of that extra cost was passed on to the American consumer. 
Trade wars
A $40 bottle of the premium spirit went up to $50, so demand went down. The Scotch Whisky Association (SWA) estimates the industry lost £600m in sales in the 18 months the tariff was in place.That was paused under President Biden, but only for five years. That period ends in June 2026, so it could get Scotch snared in the new round of trade wars to be expected if President Trump follows through on his campaign rhetoric.The figures changed between campaign speeches, but he spoke of up to 20% tariffs on all imports, higher tariffs on goods entering the US from Mexico and Canada, and as much as 60% on Chinese imports.He's not saying that now - not yet, anyway. It seems the detail is still being examined. Perhaps one of those close to him has checked the history books, and found that use of tariffs in the Smoot-Hawley Act of 1930 backfired badly for the US and world economies, contributing to the Great Depression. It innoculated the US against use of tariffs for many decades. However, the direction of the policy remains. 
Protect and survive
Trump announced a new External Revenue Service "to collect massive amounts of money pouring into our treasury, coming from foreign sources.""Instead of taxing our citizens to enrich other countries, we will tariff and tax foreign countries to enrich our citizens," he said. This is puzzling because it's Americans who will pay the tariffs while foreigners count the cost of reduced sales into the US.And there are other unintended consequences which come from tariffs: if cheap Chinese steel isn't available to make consumer goods in the US, manufacturers turn to more expensive US steel. As a result, the price of those consumer goods goes up for American consumers and for exported goods, and hits those manufacturing businesses.Over time, this protectionism can also allow companies sheltered by the tariff barriers to become less efficient, less innovative, and less able to compete with their own exports in world trade.And they have a habit of resulting in retaliation.US exports to other countries will probably suffer the consequences of tariffs slapped on them. The result? A spread of inflation.For now, the expectation of higher inflation is in the US, where the economy has been doing well and import tariffs are expected to lead to the central bank, the US Federal Reserve, keeping interest rates higher for longer to keep a lid on inflation.That expectation pushed up the US dollar in recent weeks. The delay to tariffs saw it lose value within hours, by 1% against other currencies.
So how does this affect, say, Scottish exports? The US is an important market for Scottish exports: whisky, salmon and textiles including knitwear.The trade relationship extends to US firms invested in Scotland to serve US customers, including financial service giants. Some companies manufacture in China to sell their goods into the US as well as other markets, and they could be hard hit.Appealing to Donald Trump's maternal roots in the Isle of Lewis - or indeed his investment in Scottish golf - might open the door to a conversation. But he's not known for being sentimental in pursuit of a deal.The early indications are that the second Trump administration will first push on tariffs to get what it wants out of Mexico and Canada. It's unclear whether the president will go after Chinese imports as hard as he has said. Europe is a rival trading bloc to which the UK, post-Brexit, is half-aligned. It makes the UK both a relatively low priority and vulnerable.With its own powers to negotiate on trade, since leaving the European Union, the UK could come under pressure to follow the Trump administration lead on its other foreign policy objectives, with the threat of tariffs if it doesn't.  Such is the transactional nature of Trump diplomacy. Some might call it bullying.
'Drill, baby, drill'
The slogan of oil and gas enthusiasts in the US got a big cheer in the inauguration speech. It's great news for companies that extract hydrocarbons, but the benefits President Trump chose to highlight were for sectors that burn a lot of it.A big burst of production would be a stimulus to growth in itself with more infrastructure required, notably in Alaska. Then, cheaper energy would help boost manufacturing industry, and it would be exported to the rest of the world.The simple effect of a supply increase would be to drive down energy prices worldwide. That looks good for energy users and for taming price inflation.It would drive down earnings for countries that depend on oil exports, including Russia and America's Arab allies. They could seek to adjust output to stabilise prices, but the US has already shown it has the ability to determine world prices.What would that mean for Scotland's oil and gas industry? Lower prices undermine the case for new investment, when it's already being officially discouraged by governments who prefer to see transition to renewable energy.But Scotland exports expertise in the sector and supply chain companies could expect to cash in with a share of the action in a US drilling boom.While upending markets, there is, of course, another big concern. A splurge in oil and gas drilling and burning will be seen by many around the world, and in the USA, as a catastrophe for global warming.But not in the White House. Efforts to reduce greenhouse gases may have to go on without the USA, even though in economic terms low energy costs would put it at a substantial economic advantage.