Trump Tariffs Threaten Businesses with Bankruptcy Risk

The Bank of England has warned that the threat of higher tariffs in Donald Trump's trade war could lead to more companies going bankrupt and financial losses for banks. The Bank's financial policy committee stated that increased trade levies would worsen existing vulnerabilities, with risks to global growth and inflation rising due to fluctuating border tax rates and escalating conflicts in the Middle East.

The committee highlighted that the potential for higher trade tariffs increases the chances of corporate defaults in heavily exposed sectors and losses for lenders. While UK businesses seem resilient overall, some firms and sectors, such as manufacturing and retail, could face vulnerabilities.

Despite stable debt levels, UK companies may struggle if faced with significantly higher tariffs, impacting earnings and borrowing costs. The Bank warned that a global trade shock could affect UK manufacturers reliant on US exports and retailers dependent on consumer demand.

Companies vulnerable to a trade shock represent a significant portion of UK employment and corporate debt. The committee also noted that debt issuance could become more challenging for UK firms in high yield and leveraged lending markets due to increased global fragmentation.

According to the source: The Guardian.