How American tariffs could change UK and beyond personal finances

As U.S. President Donald Trump’s administration rolls out a new wave of tariffs, this time targeting the European Union with a proposed 25% levy on imports, the economic ripples are poised to reach far beyond factory floors and corporate boardrooms.

Announced last week and set to take effect soon, these duties threaten to upend personal finances across the UK and Europe, hitting consumers with higher prices, squeezing household budgets, and potentially altering spending habits in an already fragile economic climate.

A £149 Billion Bill for EU Exports

The U.S. imported roughly $600 billion (£475 billion) in goods from the EU in 2024, ranging from pharmaceuticals to luxury cars and home furnishings. With the Trump administration framing the EU as an economic adversary “created to screw the United States,” in the president’s words the new tariffs could add a staggering $149 billion (£118 billion) to the cost of these imports, according to estimates from Trade Partnership Worldwide. While businesses initially bear this burden, economists widely agree that much of the cost will trickle down to consumers, reshaping the financial landscape for ordinary households. For the UK, no longer an EU member but deeply tied to European supply chains, the impact could be indirect yet significant. British firms relying on EU imports—think German machinery or Italian chemicals—may face higher input costs, while UK exporters to the U.S. could see demand wane if retaliatory measures escalate. The question on everyone’s mind: how will this hit the average person’s wallet?

Rising Prices: From Cars to Cosmetics

The tariffs target a broad swath of European goods popular in the U.S., many of which also flow into UK markets via trade networks. Take pharmaceuticals, the top EU export to the U.S., valued at over £100 billion annually. Weight-loss drugs from firms like Novo Nordisk (Denmark) or generics from Teva (Ireland-based in Europe) could see price hikes, raising healthcare costs for UK consumers reliant on imported medications. In the U.S., the Tax Foundation estimates tariffs on EU pharma alone could add £30 per household annually a figure that could echo in the UK if supply chains adjust.

Luxury goods are another flashpoint. Brands like Mercedes, BMW, and Volvo, alongside UK-adjacent Volvo imports from Sweden, face a 25% tariff, potentially pushing car prices up by thousands. A £40,000 Mercedes could jump to £50,000, a cost likely mirrored in the UK’s second-hand market as European dealers redirect stock. Meanwhile, everyday items like Ikea furniture, French wine, Italian handbags, even perfumes from L’Oréal could see markups of 10-25%, depending on how much businesses pass on. Posts on X today reflect growing unease: “Tariffs mean my sofa’s about to cost more than my rent,” one user quipped.

For UK households, already stretched by a 2.3% inflation rate and stagnant wage growth, these increases could erode purchasing power. The British Retail Consortium warns that retailers, facing higher import costs from Europe, may raise prices by up to 3%—adding £50-£100 to annual shopping bills for a family of four.

Jobs and Income: A Double-Edged Sword

The tariffs’ impact on employment could further strain finances. In the UK, manufacturing sectors like automotive and machinery, which employ over 800,000 people, rely on EU components. A 25% U.S. tariff on EU cars could dent demand for German parts, rippling back to UK suppliers in the West Midlands or North East. S&P Global predicts a 0.5% GDP hit across Central Europe, with knock-on effects for UK firms integrated into these supply chains. Job losses or reduced hours could follow, cutting household incomes at a time when living costs are climbing.

Conversely, some argue the tariffs could boost domestic production. If U.S. or UK firms ramp up to fill gaps left by pricier EU goods, new jobs might emerge. Yet economists caution this shift takes time—years, not months—leaving short-term pain unmitigated. “The idea that tariffs instantly ‘reshore’ jobs ignores the lag,” says Sarah Coles of Hargreaves Lansdown. “Households will feel the squeeze first.”

Investment and Savings: A Chilling Effect

Personal finances extend beyond spending to savings and investments, and here too, the tariffs cast a shadow. European stock markets, including the FTSE 100, wobbled today as investors braced for trade war fallout. The STOXX 600, with 25% of sales tied to the U.S., could slump if tariffs bite, dragging down pension funds and ISAs heavy in European equities. UBS estimates a 0.5-1% GDP drop in the eurozone, with Germany—whose carmakers like Volkswagen rely on U.S. sales—facing a 0.23% hit. UK investors with exposure to these firms may see returns shrink.

The euro and pound, already at $1.26 and $1.30 respectively, could weaken further if trade tensions escalate, raising import costs for oil and raw materials. For savers, this means higher inflation eroding cash returns, while borrowers might face tighter credit as banks hedge against uncertainty. The Bank of England, eyeing a sluggish 0.75% growth forecast, may hold rates steady or cut them, offering little relief to mortgage holders.

The European Commission has vowed a “firm and immediate” response, potentially slapping counter-tariffs on U.S. exports like coal, LNG, or tech goods. For UK consumers, this could mean pricier American imports like bourbon, Harley-Davidsons, or Apple iPhones, which dodged tariffs in Trump’s first term but not now. The Tax Foundation pegs the U.S. tariff burden at $172 per household from China alone; a full-blown EU-U.S. trade war could double that, with spillovers to the UK.

Households reliant on transatlantic goods face a pincer movement: European imports cost more due to U.S. tariffs, and U.S. imports rise if the EU retaliates. A weaker pound exacerbates this, pushing up petrol prices (tied to dollar-denominated oil) by an estimated 10-20p per gallon if tariffs disrupt Canadian crude flows, a key U.S. supply.

Coping with the Crunch

For individuals, adapting to this new reality may mean rethinking budgets. Switching to domestic brands say, a Jaguar over a BMW could dodge tariff hikes, though supply lags limit options. Energy costs, already a sore point after the 2022 Ukraine shock, may force more thermostat cuts or carpooling. Savings might shift toward cash or gold if markets sour, while side hustles could offset income dips from manufacturing slowdowns. Ultimately, the tariffs’ toll on personal finances hinges on execution. If Trump negotiates exemptions as he did briefly with Canada and Mexico or if the EU mitigates through trade deals, the worst might be avoided. But as of March 4, 2025, the outlook is stark: higher bills, tighter budgets, and an uncertain future. For UK and European households alike, the message is clear: brace for impact.