Modelling the long-run economic impacts of a stylised US tariff increase: technical paper

Executive Summary

This paper uses the Scottish Government Computable General Equilibrium (CGE) model to assess the long-run economic impacts of a stylised 10% tariff increase by the United States on UK goods exports. The modelling captures the direct effects on Scotland’s economy and interregional spillovers from the rest of the UK (rUK), as well as the domestic impacts of symmetric UK retaliation.

While the simulation is stylised and does not model industry-specific tariffs, exemptions or third-country dynamics, the modelling isolates how a US-UK tariff increase ripples through Scotland’s economy in the long-run and which industries are most exposed.

Key findings:

• A 10% US tariff reduces Scotland’s long-run GDP by 0.4%, with the largest impacts in industries with higher exposure to the US such as chemicals and pharmaceuticals and electronics. Scotland has more exposure in food and drink, in particular whiskey, while rUK has more exposure in machinery, in particular road vehicles.
• Around a third of the impact on Scotland’s GDP is driven by spillover effects from the shock to the rUK economy, underscoring the importance of interregional linkages.
• If the UK retaliates with a 10% tariff increase on US imports, Scotland’s GDP is lower by 1.0%, driven by higher input costs and weaker demand.
• The results are sensitive to trade elasticity assumptions, with higher elasticities amplifying the economic impact.