A new US Government has brought with it a sharp change in rhetoric and policy. For the UK food and drink sector, the actions of the Trump administration could create both challenges and opportunities in the months ahead. Below, our experts look at what these might be, and how UK food and drink businesses can best prepare.
1. Potential tariffs on UK food exports
Since coming to office, President Trump has been vocal about his threats to impose tariffs on countries that sell products in the US (opens a new window) in an effort to reduce US trade deficits. The President has already imposed a 25% tariff on Canada and Mexico (opens a new window) (although they have since been postponed), along with a 10% tariff on Chinese-made goods. Other named targets include the EU and Columbia – with the latter revealing Trump’s willingness to use tariffs as a political bargaining tool (opens a new window). On 20 January, the President also withdrew the US (opens a new window) from the OECD-brokered global corporate minimum tax deal, declaring it that it “has no force of effect” in the US. He later threatened to double taxes (opens a new window) against foreign multinationals operating in the US, if countries tried to impose such “discriminatory or extraterritorial” taxes on US multinationals abroad.
The UK operates a trade deficit with the US, a fact that may exempt the country from tariffs (opens a new window). But cross-Atlantic trade may yet come with greater barriers to entry. If imposed, tariffs will present UK food and drinks businesses with a choice: whether to increase prices, or absorb the cost. Premium brands will be best placed to do the latter, but cannot guarantee against the encroachment of cheaper, US-based competitors. To avoid potential loss, businesses may wish to explore production capacity in the US, potentially through license or joint venture arrangements.
2. A return to inflation?
It’s not just food and drink policy abroad that could shape the sector in the UK. On his return to office, the President immediately signed a number of executive orders (opens a new window), including declaring a national emergency at the US border. Since then, he has promised to conduct “the largest deportation program in American history.” If successful, the policies are likely to reduce the size of the US labour pool, with a potentially inflationary impact on domestic wages.
This has global implications. Inflation will be of keen interest to the Federal Reserve during its decisions on potential interest rate cuts – with action in the US often setting the tone for central banks around the world. If US-driven inflation serves to keep interest rates high, the Bank of England may show more reluctance to introduce cuts of its own.
3. UK-US trade deal, deregulation, and increased competition
Speculation over a UK-US trade deal is not new, especially when it comes to food. UK farmers and some shoppers have long been concerned (opens a new window) about the prospect of chlorinated chicken appearing on supermarket shelves, in what has become symbolic of allegedly lower US food standards. But a trade deal could also raise questions about the introduction of genetically modified foods into the UK, and is likely to meet with anger from British beef, pork, and poultry farmers. In the negotiation of any trade deal, the UK Government may – as a bargaining chip – choose to accept similar regulatory standards for UK farmers, in the interest of maintaining a level playing field. Even this, however, does not rule out the possibility that an influx of substantially cheaper products might cause subsectors of the UK market to become unsustainable for some domestic producers.
How supermarkets may react to such a deal is unclear. Keen to please UK shoppers, they may be reluctant to swap out familiar products for new imports. However, British supermarkets face unique price competition, and many shoppers will generally opt for the cheapest product – especially in the face of high living costs. If a product falls within the rules set by the UK government, along with the Food Standards Authority, supermarkets will likely sell it.
Crucially, any deal with the US is likely to involve trade-offs. Critics of the Labour Government, including the National Farmers Union, have stressed the threat to UK food security created by recent inheritance tax (opens a new window) increases, and more frequent extreme weather (opens a new window). If a trade deal were to negatively impact domestic food production and increase reliance on foreign imports, it could impact the industry-wide exposure to supply chain, geopolitical frictions, and other interconnected risks.
4. Reshaping global food policy
Tariffs, or an inability to strike a trade deal with the US, could drive closer ties between the UK and other trading partners. The EU remains the UK’s biggest trading partner for food and drink; despite a post-Brexit decline, the bloc accounted for 41.4% of sector exports in 2023 (opens a new window), almost double those to the US (21.7%).
Efforts to rejoin the EU customs union are likely to meet fierce political opposition in Westminster. Nevertheless, prospects of closer UK-EU ties were raised in January, following comments from EU Commissioner Maroš Šefčovič (opens a new window), that the UK could consider joining the Pan-Euro-Mediterranean convention (PEM). Originally agreed in 2012, PEM allows goods to flow tariff-free across borders. Advocates argue that joining PEM would insulate the UK against potential US tariffs, while cutting red tape for businesses and improving trade.
5. Pressure on unhealthy food
On 15 November, Robert F. Kennedy Jr., a known proponent of healthy and ‘natural’ food, received his Presidential nomination (opens a new window) to lead the Department of Health and Human Services, the top US health agency. If confirmed by the Senate, his nomination could reshape federal attitudes towards so-called ‘Big Food,’ referring to the companies that produces the majority of American (and global) food and beverages. A probable target of efforts to ‘Make America Healthy Again,’ as the movement is known, is so-called ‘Ultra-processed foods’ (UPFs). The category, which has no standardised definition, includes a wide range of items – from canned drinks to frozen meals – characterised by relatively involved methods of production. Critics of UPFs argue that their consumption is linked to higher rates of non-communicable disease and obesity.
America is not the only nation with ambitions for better health, however. Kennedy’s regulatory push, if successful, could embolden politicians around the globe to act on unhealthy food – including UK Health Secretary Wes Streeting, who argues that obesity currently costs the NHS £11 billion each year (opens a new window), plus costs for lost working days. Streeting’s existing proposals for the food and drink sector include a ban on so-called junk food adverts (on television and online), and rules to ensure schools limit access to fast food. The Government is also conducting a review of the existing sugar tax.
The importance of business resilience
For the UK food and drink sector, the outlook for the next few months remains uncertain. What is clear, however, is the importance of establishing resilience against prospective risk.
Ways to establish resilience include:
Establish a risk framework, or horizon-scanning capability, in order to identify key business exposures and risks, and identify potential opportunities.
Conduct scenario planning exercise to establish what could occur at a micro-level, and how to respond.
Where possible, diversify supply chains to reduce exposure to single geographies and geopolitical risks.
Engage in knowledge-sharing exercises with businesses, industry bodies, and government to establish best practice and ensure business interests are represented.
Visit our Food and Drink (opens a new window) page for more information, or reach out to a member of our team.
Parts of this article were originally delivered at Lockton’s webinar (opens a new window), ‘How the first 48 hours of Trump Presidency will shape the UK Food & Drink industry’, hosted on Thursday 24 January.
