Donald Trump’s crippling ‘Liberation Day’ tariffs threaten disaster for Rachel Reeves with Chancellor’s headroom to be worn out only one week after cuts

Rachel Reeves will face a fresh crisis today as Donald Trump unleashes a fresh barrage of crippling tariffs.

The US President will tonight announce sweeping taxes on goods from around the world, which threaten to ‘knock out’ the Chancellor’s latest financial plans only a week after she announced them.

Markets around the globe have plunged in anticipation of Mr Trump’s so-called Liberation Day, and yesterday Britain’s economy suffered a string of downgrades. 

White House aides have reportedly drafted plans for ‘big-bang’ tariffs of about 20 per cent on most of the £2.3 trillion of goods imported annually to the US.

UK officials desperately tried to negotiate an economic deal with the US to protect businesses, but have given up hope of securing one before the tariffs are introduced.

Sir Keir Starmer even invited Mr Trump to visit the UK in June to sign a deal to swerve the tariffs, but was snubbed by the US President.

Economists suggest the tariffs could wipe out the fiscal headroom Ms Reeves engineered for herself last week in her Spring Statement.

Professor David Miles, from the Office for Budget Responsibility (OBR), told MPs on the Treasury committee: ‘If tariffs at 20, 25 per cent were put on the UK and maintained for five years, our assessment of what that does is that it will knock out all the headroom that the Government currently has.’

Last night a think-tank warned more than 25,000 UK car manufacturing jobs could be at risk from US import tariffs.

They could ‘completely destabilise the UK car manufacturing industry’, the Institute For Public Policy Research said, adding that employees at Jaguar Land Rover and Mini were among the most exposed.

The Tories said Labour was guilty of an ‘epic failure’ on trade policy and the UK economy will pay the price.

The party’s business spokesman Andrew Griffith told Sky News: ‘I am afraid Rachel Reeves is going to have to come back next week for a new emergency Budget because the [statement] she laid out last week hasn’t lasted a week.

‘She made no provision for US tariffs and the sliver of headroom that she had in there will be easily and more than extinguished by the impact on our economy from these tariffs.’ Final details of Mr Trump’s plans remained unclear last night ahead of a speech he is due to deliver tonight from the White House Rose Garden.

But his press secretary Karoline Leavitt was in combative mood, saying the ‘historic’ tariffs would mean ‘the days of America being ripped off are over’.

‘He is with his trade and tariff team right now, perfecting it to make sure this is a perfect deal for the American people and the American worker,’ she said last night.

Bloomberg Economics found that in a worst-case scenario 1.3 per cent of UK gross domestic product (GDP) is at risk. 

That would wipe out Britain’s already anaemic growth this year and blow a gaping hole in the fragile public finances. 

The Bloomberg forecast was based on America raising tariffs on UK imports by 35 percentage points, causing trade to collapse by 80 per cent. 

Even in a milder scenario, with tariffs rising by 25 percentage points, Britain would face a 70 per cent drop in exports to the US, resulting in a 1.1 per cent hit to GDP, Bloomberg calculated.

US investment giant Goldman Sachs also downgraded its UK growth outlook for this year to 0.8 per cent.

In November, Goldman was predicting that the UK economy would grow by 1.6 per cent this year. Since then it has reduced expectations as Mr Trump’s plans have become clearer and now judges that the trade war will knock nearly 0.5 per cent off growth.

That includes the impact of previously announced duties on steel and aluminium as well as cars, plus an assumed 10 per cent tariff on goods defined as ‘critical’ to key industries.

However, it assumes that the UK escapes so-called ‘reciprocal’ tariffs of the kind expected to be announced today – which the US is imposing on trading partners that levy sales taxes such as VAT.

If Britain is faced with such tariffs, the outcome could be worse.

The OBR last week slashed its UK growth outlook from 2 per cent to 1 per cent – but without taking account of the trade war, which will put a further dent in the economy.

Ms Reeves left herself £9.9 billion of headroom against her fiscal rules in her Spring Statement. She could be forced to increase taxes or implement further spending cuts if the headroom is slashed.

The UK appears unlikely to respond with immediate retaliatory measures, unlike other targets of Mr Trump’s sanctions, such as the European Union.

The Prime Minister said businesses want a ‘calm and collected response to this, not a knee-jerk’. But he insisted that ‘all options remain on the table’.

Sir Keir also said talks on an economic deal would normally take ‘months or years’ but ‘in a matter of weeks we have got well advanced in those discussions’. Whitehall sources suggested a deal could be reached soon after tariffs are imposed.

It came as Mr Trump signed an executive order aiming to stamp out ‘exploitative ticket scalping’ by reforming pricing of live entertainment events. He was joined in the Oval Office by singer Kid Rock, 54, who wore a patriotic outfit.