Last week First Minister John Swinney flew to Washington DC to meet with US President Donald Trump. His mission? To persuade him to reduce or drop the 10% rate of trade tariffs on Scotch whisky. 

Since Trump entered the White House for the second time in January this year, tariffs have become a central feature of his administration’s economic policy arsenal, generating significant global uncertainty for much of 2025. Unlike in Trump’s previous term, when tariffs were mostly targeted at specific countries (China) or goods (steel and aluminium), tariffs have now been deployed much more broadly, leading many to question the impact of these taxes on local economies worldwide. 

Even Trump’s u-turn on the ‘Liberation Day’ tariffs and subsequent trade agreements have left US import tariffs at their highest level since the 1930s.

The UK and Scotland are now facing additional 10% tariffs on most goods. While not insignificant, these tariffs are lower than those faced by most other US trading partners, which could keep UK products relatively competitive in US markets.

The impacts from higher tariffs and increased uncertainty will emerge over time, but the latest Regional Trade Data publication provides an early glimpse into post-tariff Scottish goods trade performance. Somewhat surprisingly, the first quarter of Scottish trade under the new tariffs has seen year-on-year growth of 7.6% in exports to the US. Exports from the UK as a whole have performed more poorly, falling 12.5% year-on-year, as car sales to the US suffered from the 25% tariff.

But what actually are tariffs, and what is their potential impact on the US and Scotland’s economy?

Tariffs are a tax on goods coming into a country. Despite Trump’s claims to the contrary, these taxes are paid by the domestic (US-based in this case) importers – not the country exporting the goods. They only apply to trade in physical goods, which have to complete a custom declaration when crossing a border, and not services, like marketing or financial services.

By placing a tax solely on foreign goods, tariffs make domestic goods relatively cheaper. Trump hopes this will lower imports and reduce the US trade deficit, which stood at $1.2 trillion in 2024. 

The extent to which the volume of imports changes in response to a change in prices (e.g. from tariffs) is determined by what economists call ‘income price elasticities’. It has been estimated that a 10% change in prices could result in anything between a 7.5% and 40% change in the volume of imports, depending on the timeframes and countries under consideration, and the methodology used in the studies. Elasticities are generally expected to be lower in the short and medium term (as there is limited scope to reorganise supply chains) and for less substitutable goods.

However, economists have warned that universal tariffs are a bad policy tool to try to close the US trade deficit, for two reasons. Firstly, the US imports many goods that can’t realistically be produced domestically (e.g. coffee). This means US consumers and producers can’t easily shift to US-made goods, and are left with the choice of paying higher prices, with potential impacts on inflation, or not consuming them at all.

Second, tariffs on imports will likely reduce US exports over time too. There are two main reasons for this. Firstly, tariffs raise production costs for US-based companies. For example, US-based car manufacturers now have to pay 50% on most imported steel and aluminium and 25% on imported car parts – making their cars less competitive abroad. Secondly, if tariffs did succeed in increasing domestic demand for domestically produced goods, this is likely to draw capacity away from companies and sectors that are currently more export-oriented.

There are early signs in the US 2025 trade data that new tariffs have so far had little impact on the trade deficit. Imports were one percent higher in July 2025 than in July 2024. The trade deficit over that period did decrease by two percent, but this was driven by export growth (4%) which is unlikely to be sustained.

However, there have been bigger changes in US imports from countries that have been directly targeted with higher tariffs. Imports from China have fallen sharply, as the country has been targeted with tariff rates between 30% and 145% on most goods over that period. Trade with other partners has fluctuated with the timings of the tariff rollout. Imports from the UK fell in April 2025, as the US imposed 25% tariffs on cars, which make up 16% of UK exports to the US, but have since partly recovered. 

Following the deal struck between the UK and US in May 2025, most Scottish exports to the US are facing a 10% additional tariff. Tariffs on steel and aluminium are 25%, but expected to fall in the near future. UK tariffs on cars and steel and aluminium are lower than those faced by most other trading partners – 25% and 50%, respectively. The baseline rate of 10% is also lower than that the US has agreed with Japan (15%) and the EU (15%, but not additional). So how could this impact Scotland’s economy?

Higher tariffs could decrease US demand for Scottish goods. Therefore, understanding what we export to the US is key to understanding which sectors of the economy are most exposed.

The US is Scotland’s second largest export market, only behind the European Union (if taken as a single trading bloc). In 2021, Scotland exported £5.1bn to the US, 16% of all international exports. 52% of this was in goods, which is exposed to tariffs, and 48% in services.

More recent data is available for trade in goods from HMRC’s Regional Trade Statistics, which allocates business’ trade across UK regions based on the proportion of its employees employed in that region. In the year to March 2025, just before most tariffs came into effect, Scotland exported £4.3bn to the US, making up 18% of international goods exports (excluding oil and gas). Over that period, the EU made up 37% of exports, and the rest of the world the remaining 45%.

The US share of Scottish exports has grown from 16% in the year to March 2018, as US exports have outperformed exports to the EU, perhaps suffering the impact of Brexit, and the rest of the world. Besides regional differences, overall export performance has been weak. In nominal terms, exports of goods remained below 2023 levels in the year to March 2025. Inflation adjusted figures developed by the Scottish Government shows that in 2025 total exports remained below 2018 levels in real terms. This suggests that Brexit has not only impacted trade with the EU, but more generally hampered the UK’s and Scotland’s integration in global supply chains and markets.

But what does Scotland actually export to the US, and how have different goods performed over time? Traded goods are grouped by the Standard Industrial Trade Classification into 10 sections (e.g. chemicals), which are broken down further into 67 divisions (e.g. organic chemicals, medicinal and pharmaceutical products, etc.).

In the year to March 2025, the top three sections were machinery and transport equipment (30%), beverages (22%), and chemicals (19%). The contribution of beverages – which includes Scotch whisky – was down from 33% in the year to March 2018, while that of chemicals was up from 12%, driven by growth in exports of pharmaceutical products.

At the division level, the top three products are beverages, pharmaceuticals, and power generating machinery. Other important products are non-ferrous metals, which includes materials like silver, aluminium, and nickel; and power generating machinery, which includes manufactured goods like internal combustion and electric motors, turbines, and their components. Pharmaceuticals and non-ferrous metals are particularly exposed to the US, with 42% and 54% of Scottish exports in those products going to the US in the year to March 2025. 

In practice, the overall impact of 10% higher tariffs on exports to the US on Scotland and the UK is likely to be relatively small. Scottish goods exports to the US only make up around 2% of GDP, and tariffs are unlikely to get anywhere close to wiping them out completely. For most sectors the impact is likely to be marginal. A 10% tariff is unlikely to be prohibitive for most US importers, and the UK is now facing lower tariffs than other trading partners in some sectors which might make Scottish products relatively more attractive to the US markets than imports from other countries.

Over the long term, the Scottish Government is anticipating a relatively small impact on exports and GDP, based on their modelling. The analysis suggests larger impacts for countries more exposed to US trade, like Mexico and Canada, or facing higher tariffs, like China.

However, short-term disruption could be more significant in a few important products like pharmaceuticals, non-ferrous metals, and power generating machinery – particularly for companies with more significant exposure to the US market. Similarly, Scotland’s whisky industry fears that the 10% tariff could undermine sales in its largest export market. In 2019, the Trump administration imposed a 25% tariff on Scotch whisky. This led to a sharp decline in exports to the US, which the Scotch Whisky Association claimed cost the industry over £600 million in lost sales. Such fears are likely the motivating factor behind the First Minister’s flying visit to Washington DC last week. 

To date however, there are no signs that Scotland’s export performance overall has suffered – for now at least. The latest Regional Trade Statistics release covers the second quarter of 2025, the first three-month period that was almost fully impacted by the post 'Liberation Day’ tariffs. Scottish exports to the US in the second quarter of 2025 grew by 7.6% on the same quarter in 2024, outpacing overall export growth (5.1%). The increase was led by growth in exports of power generating machinery and chemical products. This is in sharp contrast with the performance of the UK as a whole, which saw a decrease of 12.7% in exports to the US over the same period. This was driven by a decrease in the export of road vehicles and pharmaceutical products.

Another medium-term risk is that tariff uncertainty could impact US companies’ decisions to invest in Scotland. The US has been a key source of foreign direct investment (FDI) in the past few years, and was the origin of one of every four new FDI projects in Scotland in 2024. Some of these projects, particularly those reliant on US demand, might become less attractive because of higher tariffs. While FDI can be a source of investment and high productivity jobs, its vulnerability to global politics highlights the importance of having a strong domestic innovation and investment ecosystem.

US trade policy has taken a sharp turn under Trump. Broad tariffs are unlikely to achieve the administration’s goals of closing the US trade deficit and increasing domestic manufacturing. Instead, the tax on imports will be felt by American consumers, furthering the cost of living pressures, and companies, potentially making them less competitive in global markets. 

While the 10% tariffs being faced by the UK and Scotland are not insignificant, these tariffs are lower than those faced by most other US trading partners, which could keep UK products relatively competitive in US markets.

However, perhaps the biggest threat to Scotland’s economy comes not from Trump’s trade policies directly, but from the uncertainty and chaos his actions have unleashed. Many analysts are now predicting that the US will enter a recession this year – potentially taking the rest of the world with it. Any slowdown in the world’s biggest economy will have ripple effects all over the globe – and Scotland, like all countries, won’t be immune from the fallout.