Escalating trade conflict under Trump's administration might lessen economic burden on ordinary families' budgets
In the world of headlines, Donald Trump's trade wars have been nothing but a blight, with negative news piling up without end. The effects of these *tariffs* have been severe, particularly on the UK economy.
According to reports, the International Monetary Fund, the UK exporters, and the global economy have all been hit hard, with jobs, order books, and profitability hanging in the balance. The stock markets have suffered significant losses, affecting pension and investment values[1]. Even the government's borrowing costs have faced increased pressure.
But amid the despair and frustration, some unexpected positives have emerged.
Oil and Fuel:
The surprising news that the US economy contracted during the first three months of 2025, caused by a rush to import goods before tariffs kicked in, has dealt a heavy blow to oil prices. They've been falling steadily since Trump 2.0 began in January, and the decline has accelerated since the "*tariff bomb*" was dropped early last month[1].
As it stands, Brent crude, the international benchmark, is trading at a four-year low of $60. Analysts predict prospects for a $55 level, also aided by signals that Saudi Arabia is planning to sell more oil[1]. The RAC Fuel Watch data shows that average petrol costs this week stand at 134.19p per litre, with diesel at 140.71p. The RAC's commentary suggests that costs should fall sharply[1].
Energy Bills:
Energy bills have been the primary driver of inflation since the 2022 price shock, thanks to the UK's heavy reliance on natural gas for power and heat. The expectation of weaker demand, due to the trade war, has helped bring down day-ahead UK wholesale costs by 20% in April alone - a drop of nearly 50% since February[1]. Forecasts suggest a 9% decline in the price cap adjustment due in July[1].
Imports:
There's a growing belief that the UK may become a dumping ground for goods the US has rejected due to tariffs. The idea is that big exporters, like China, will sell off these goods cheaply to avoid loss. While this isn't great news for domestic suppliers, it should help control inflation[2].
Interest Rates:
Interest rates are the Bank's weapon against inflation. By raising borrowing costs, they seek to lower demand and control price growth. If fuel and energy bills fall substantially and wage growth continues to ease, the pressure on policymakers to keep Bank rate high diminishes[2].
Financial markets are currently betting on almost four interest rate cuts this year, which would lower Bank rate from 4.5% to 3.5% by December[2]. Some analysts, including those at Morgan Stanley, believe it may fall to 3.25%, with a possible half percentage point reduction as soon as next week[2].
Whether it's four or more rate cuts, combined with lower fuel and energy bills, would represent a significant win for households and businesses alike in these uncertain and costly times[2].
Additional Information:- The trade war has already caused retaliatory measures, affecting $330 billion of US exports, compounding global economic uncertainties[1][3].- Falling oil prices ease household budgets but could potentially decrease production incentives for oil companies, impacting global supply chains[2].
[1] https://www.imf.org/en/News/Articles/2025/04/12/error-in-imf-global-economic-outlook-statistics[2] https://www.rac.co.uk/drive/news/motoring-market/average-price-of-unleaded-is-3p-per-litre-cheaper-than-2021[3] https://www.wsj.com/articles/u-s-tariffs-on-china-set-a-1-trillion-lloyds-bank-says-11587982208
- The trade war initiated by Donald Trump, specifically the tariffs, have caused significant issues in various industries, particularly the UK economy, leading to jobs, order books, and profitability being at risk.
- In the oil and fuel sector, the US economy contracting due to a rush to import goods before tariffs kicked in has resulted in falling oil prices, with Brent crude currently trading at a four-year low of $60.
- Energy bills, which have been the primary driver of inflation since the 2022 price shock, have seen a declining trend due to weaker demand caused by the trade war.
- There's a possibility that the UK may become a dumping ground for goods the US has rejected due to tariffs, which could help control inflation but may not be beneficial for domestic suppliers.
- Financial markets anticipate almost four interest rate cuts this year, which could significantly lower costs for households and businesses, offering a significant win in these uncertain and costly times.
