US-UK Trade Deal Lowers Tariffs on Two Close Allies

May 9, 2025
John

Will the US-UK Trade Spur More Deals?

U.S. President Donald Trump and British Prime Minister Keir Starmer announced a limited bilateral trade agreement, marking the first such deal since Trump’s global tariff war began. The deal modestly expands agricultural access and lowers U.S. tariffs on British car exports but keeps a 10% tariff on other UK goods. It represents a tactical response to Trump’s tariffs rather than a full free trade agreement and opens new market opportunities while maintaining some existing tariffs.

Key Points

The deal lowers average U.S. tariffs on British goods from 5.1% to 1.8%, but retains a 10% tariff on many UK exports.
British car exports to the U.S. will see tariffs reduced from 27.5% to 10% under a 100,000-vehicle quota.
New reciprocal market access quotas granted for beef, steel, and ethanol.
No weakening of UK food standards, especially for U.S. beef with growth hormones, in line with Labour manifesto pledges.
The deal is seen as a step towards broader trade talks but not a comprehensive free trade agreement.
Trump plans dozens of similar tariff-lowering trade deals amid ongoing tariff disputes with China and other partners.
The agreement sparked mixed reactions, with some disappointment over retained tariffs but optimism about increased market access.

For the UK, this weekend centered around the US-China talks will have large implications for an open economy like the UK. This is especially true for the main stock index in the UK, the FTSE. This index has more sensitivity to global grouth instead of the UK economy since there are major international mining companies and banks in the index.

Political and Strategic Implications

The UK-US trade agreement signals a strengthening of the “special relationship” between the two nations post-Brexit, emphasizing shared values and economic cooperation. It also serves as a strategic counterbalance to China’s growing influence in global trade. Both governments have expressed intentions to deepen collaborations beyond trade, including technology, defense, and climate change initiatives.

The deal is also seen as a strategic move to deepen economic ties post-Brexit, as Britain seeks new trade partnerships outside the European Union.

Industry Reactions

Automotive Sector: The reduction of tariffs on UK-made cars is a significant win for manufacturers like Jaguar Land Rover and Mini. However, the cap at 100,000 cars annually means some export limitations remain.
Agriculture: While beef exporters applaud quota expansions, other farmers remain wary about ethanol imports potentially undercutting domestic markets.
Pharmaceuticals: The tariff preferences combined with eased regulatory hurdles could boost UK pharma exports, though ongoing US investigations into supply chain security create some uncertainty.
Steel and Aerospace: The easing of tariffs provides relief to UK steel producers and aerospace firms, including Rolls-Royce, fostering competitiveness in these critical sectors.

Background and Context

This limited bilateral trade deal comes after years of escalating tariffs initiated by former President Trump, who aimed to protect U.S. industries by imposing tariffs on steel, aluminum, and various goods from multiple countries, including the UK. The tariffs had strained international trade relations and prompted retaliatory measures from affected countries.

The UK, having recently exited the European Union, has been actively seeking new trade agreements globally to compensate for the loss of seamless access to the EU single market. A case in point, is the recent UK-India Trade deal.

Sir Keir Starmer hailed a newly sealed US-UK trade deal as a “really fantastic, historic day,” reminiscent of the wartime alliance celebrated 80 years ago. However, the reality was a pragmatic agreement finalized through last-minute negotiations aimed primarily at mitigating the effects of Donald Trump’s global trade war. The deal, announced from the Oval Office with UK ambassador Lord Peter Mandelson and Starmer’s business chief Varun Chandra, includes concessions on American beef and UK carmakers but falls short of the ambitious free trade agreement Brexit supporters envisioned. Despite some domestic political challenges, Starmer is positioning the UK for deeper international cooperation, including a forthcoming additional deal with the EU.

Economic Impact

While the deal does not eliminate all tariffs, it provides British exporters with improved access to the lucrative U.S. market, particularly in key sectors like automotive and agriculture. The reduction in tariffs on British cars, although limited by the vehicle quota, could encourage increased exports and potential job growth in the UK automotive industry.

Similarly, U.S. producers of beef, steel, and ethanol gain new export opportunities to the UK under specified quotas. Maintaining stringent food safety standards ensures that consumer expectations in both countries are upheld, which could foster trust and stability in trade relations.

Political Implications

Politically, the agreement showcases a willingness by both leaders to cooperate despite previous tensions over trade policies. Prime Minister Starmer emphasizes that the deal aligns with Labour Party commitments to protect domestic standards, signaling a cautious but pragmatic approach to international trade.

President Trump’s administration appears eager to showcase tangible results from its tariff strategies by securing these targeted deals. The announcement may serve as a model for similar agreements with other countries caught in trade disputes or seeking better market access.

Future Prospects

Both leaders hinted at the possibility of expanding this arrangement into a broader free trade agreement in the future. However, significant hurdles remain, including negotiations over regulatory alignment, intellectual property rights, and digital trade rules.

The deal also occurs against a backdrop of evolving global trade dynamics, with ongoing negotiations involving China, the European Union, and other major economies. How this limited U.S.-UK agreement influences or integrates with larger multilateral frameworks will be closely watched.

Conclusion

The U.S.-UK limited bilateral trade deal represents a pragmatic step forward in renewing and expanding economic ties between the two countries amid complex global trade challenges. While not comprehensive, it offers tangible benefits for specific sectors and sets the stage for potentially deeper cooperation going forward. Both governments will likely use this agreement to build momentum for future negotiations aimed at reducing barriers and fostering more robust transatlantic trade.