Rachel Reeves ‘must hike taxes AGAIN’ as Trump smashes her Spring Statement plans with 25% import tariffs on all international vehicles from April 2… however Chancellor says she remains to be pleading for an exemption

Rachel Reeves has been warned she faces having to hike taxes again after Donald Trump inflicted a major blow to her Spring Statement.

The US president delivered the latest salvo in his burgeoning trade war by vowing 25 per cent tariffs on all car imports, hours after the Chancellor laid out her plans.

Ms Reeves was humiliatingly forced to deliver a £14billion package of emergency spending cuts after stalling growth and rising debt interests costs wreaked havoc on her Autumn Budget.

But economists have cautioned that the public finances are so precarious she is likely to have to return for another round of tax increases later this year. Ms Reeves played the prospect down as she toured broadcast studios this morning, without completely ruling it out. 

With frantic talks ongoing over a deal that could spare the UK, the Treasury’s OBR watchdog said Mr Trump’s move represented a ‘crystalisation’ of global risks. 

The body’s outlook yesterday laid out a ‘severe’ scenario, in which the UK and other nations retaliated to the imposition of tariffs. That would see GDP 0.6 per cent lower than forecast this year and 1 per cent lower next year.

It would also ‘almost entirely eliminate’ the Chancellor’s £9.9billion headroom against her fiscal rules, potentially forcing her to implement further spending cuts or tax rises.

An alternative scenario, in which the UK does not retaliate, would see a smaller reduction in growth, with GDP 0.4 per cent lower than expected this year and 0.6 per cent lower next year.

Asked during a round of interviews this morning about Mr Trump’s latest announcement, Ms Reeves said: ‘The Prime Minister went to Washington just a couple of weeks ago and met the US president, and we are now having extensive talks with our counterparts in the US to protect trade between our countries, those conversations will continue.

‘Obviously the announcements of tariffs is something that the US plan to bring in next week, but we are in discussions about what that means for the UK.

‘A million British people work for American firms. A million Americans work for British firms. Our two economies are so closely intertwined.’

Ms Reeves told Times Radio: ‘I believe – and we make this case to the United States – that free trade, fair trade, is good for both of our countries, but let’s see where we get to in the next few days.’

Ms Reeves told Sky News: ‘We’re not at the moment at a position where we want to do anything to escalate these trade wars.

‘Trade wars are no good for anyone. It will end up with higher prices for consumers, pushing up inflation after we’ve worked so hard to get a grip of inflation, and at the same time will make it harder for British companies to export.’

Mr Trump has christened April 2 ‘Liberation Day’, vowing to impose ‘reciprocal’ levies offsetting those of all trading partners.

The EU appears to be the main target, with the president raging that the bloc was created to ‘screw’ America.

However, the UK could also be hit as Mr Trump has complained that VAT is unfair – despite being a general sales tax and not focused on imports.

The UK currently imposes 20 per cent VAT on most goods and services. 

The National Institute of Economic and Social Research (NIESR) previously estimated that tariffs of that scale could knock 0.4 percentage points off UK economic growth for the next two years – equivalent to around £24billion.

Keir Starmer has already failed to carve out an exemption from US levies on steel imports, with fears of job losses. 

OBR head Richard Hughes told BBC Radio 4’s Today programme: ‘This represents the crystalisation of one of the risks we highlighted around our central forecast, which was one of escalating global trade tensions.’

He added: ‘The announcements that you saw overnight were about tariffs on cars. To put that into context, the UK exports in terms of good to the US, about 2 per cent of GDP. Car exports are about 10 per cent of that.

‘So that is affecting directly UK goods exports of around 0.2 per cent of GDP. 

‘So what Trump’s announced overnight is not the whole of that worst case scenario, but it’s elements of it. And it’s the beginning of that risk…’

Mr Hughes stressed that the £9.9billion headroom Ms Reeves had left was a ‘tiny fraction’ of the risks that could hit the UK.

Shadow chancellor Mel Stride told ITV’s Good Morning Britain that Ms Reeves had not left enough of a buffer for a trade war. 

‘The bottom line is that if you have a chancellor that cannot grow the economy, cannot make decisions on tax and borrowing and spending, then you end up in the situation where we’re in where we still don’t really have enough headroom to withstand what might be coming down the line,’ he said.

‘If we have a world trade war, that headroom that Rachel Reeves rebuilt yesterday because she burned through all the last headroom, I’m afraid, will just not be sufficient.

‘She should have had us in a stronger position, so that she had more headroom, more resilience in the economy to withstand these things.’

Mr Trump told reporters in the Oval Office last night: ‘What we’re gonna be doing is a 25 percent tariffs on all cars that are not made in the United States.

‘Business is coming back to the United States.’

Mr Trump said that the tariff taking effect on April 2 will impact both ‘friends and foes’ of the US and is considered ‘modest’.

The president is signing an executive order to help the auto industry ‘flourish like never before.’

‘It will lead to tremendous growth in the automobile industry,’ he said.

Mr Trump played down fears that Americans will see higher prices due to the new tariff, saying ‘we’re going to have the best economy ever’.

Experts have estimated that the price of cars will rise by thousands of dollars due to Mr Trump’s action.

According to the Anderson Economic Group the cost of a car that’s built in the US – but requires foreign parts – could also rise due to the tariffs.