President Donald Trump has warned the United Kingdom that it faces sweeping new tariffs unless it abolishes its digital services tax on American technology companies, escalating tensions in an already strained transatlantic trade relationship.
Speaking from the Oval Office on Thursday, Mr Trump delivered a blunt ultimatum to Downing Street, saying: “We’ve been looking at it and we can meet that very easily by just putting a big tariff on the UK, so they better be careful. If they don’t drop the tax, we’ll probably put a big tariff on the UK.”
The threat targets the UK’s digital services tax (DST), a 2% levy on the revenues of major technology companies introduced in 2020. The tax applies to firms whose global revenues from digital activities exceed £500 million, provided that more than £25 million of those revenues derive from UK users — a threshold that captures almost exclusively large American corporations such as Google, Meta, Amazon, and Apple. The tax generates approximately £800 million annually for the UK Treasury.
Washington has long viewed the levy as discriminatory, arguing it unfairly singles out US companies while broadly exempting Chinese tech rivals. The United States has previously threatened to open a formal Section 301 trade investigation into the tax, a legal mechanism that could pave the way for punitive import duties on a range of British goods.
A Simmering Dispute
The row is not new. As far back as 2021, the Biden administration warned it could impose tariffs of up to 25% on UK exports — including ceramics, cosmetics, and furniture — in retaliation for the very same levy. But the dispute has sharpened significantly under Mr Trump, who has made tackling what he describes as unfair foreign treatment of American technology firms a central pillar of his trade agenda.
Earlier this year, the US paused a flagship £31 billion Tech Prosperity Deal with Britain, announced with considerable fanfare during Mr Trump’s state visit in September 2025, after Washington grew frustrated with London’s refusal to concede ground on the digital tax. The deal, which had been billed as a major vote of confidence in the UK’s artificial intelligence ambitions, was placed on ice amid what officials described as a lack of “substantive progress” on broader trade issues.
UK in a Difficult Position
The UK government finds itself caught between competing pressures. Chancellor Rachel Reeves has previously indicated that adjustments to the digital services tax were “in discussion” as part of broader negotiations to avoid punishing tariffs on British exports. However, no changes were announced in the most recent Budget, deepening US frustration.
Critics at home have been vocal. The Liberal Democrats have warned that scrapping or watering down the levy would amount to handing a tax break to Silicon Valley billionaires at a time of domestic austerity, with their Treasury spokesperson Daisy Cooper accusing the government of risking its “moral compass.” The party has instead called for the DST to be increased to 6%.
What Happens Next
A UK government spokesperson has sought to downplay the escalation, insisting the “special relationship remains strong.” However, trade analysts warn that Mr Trump’s latest comments significantly raise the stakes, and that London may have little room to manoeuvre without triggering a domestic political backlash.
The UK’s digital services tax has collected an estimated $3.1 billion from US companies since 2001, a figure that Washington describes as both inequitable and contrary to the spirit of existing tax treaties. With broader US-UK trade negotiations still ongoing, the fate of the levy is likely to remain one of the most contentious issues on the table.