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

Introduction

The US tariff landscape for the UK has evolved over the last few months. On top of sector-specific tariffs on steel, aluminium and cars, on April 2 President Trump announced that the UK, along with many other countries, was to be subject to a 10% ‘baseline’ additional tariff on most products from April 5.^[1] The UK then signed the Economic Prosperity Deal on May 8 which included concessions on steel, aluminium and cars.^[2]

In our July economic bulletin we explored the impact of the US’s tariff policy, as of June 2025, on trade patterns using our global gravity model.^[3] It found that US tariff policy reduced Scotland’s output by around 0.1% in the long-run. Importantly, gravity modelling focuses on trade flows and omits supply chain linkages and broader economic effects. As a result, it may provide a more conservative estimate of the overall economic impact.

Our CGE model captures indirect effects on supply chains and induced effects on the wider economy. While the scenario modelled here is stylised, not accounting for sector-specific tariffs and exemptions, nor does it capture third country effects, the simplicity allows us to draw out the sensitivity of the Scottish economy to a 10% US tariff increase on UK goods.

The economic impact is driven by the exposure of Scottish industries to the US market. In our April Economic Insights Report we looked at regional trade statistics (RTS) data for Scotland and the UK and found that Scotland is more exposed in beverages and tobacco, in particular whisky, while the UK is more exposed in machinery and transport equipment, in particular road vehicles.^[4]