The UK has reached its first trade agreement with the United States since President Donald Trump’s trade war began. While the deal provides relief in certain sectors, significant tariffs remain.
Key Points of the Deal
• Reduced Tariffs on Cars and Steel:
• British steel and aluminium exports now face zero tariffs.
• First 100,000 British cars sold annually in the US will have a reduced tariff of 10%.
• Continuing Tariffs:
• Most other goods from the UK will still face a 10% tariff imposed by the US last month.
• Agricultural Concessions:
• The UK will allow greater access to its market for US farmers via a lower-tariff quota system.
• Tariff removal on up to 1.4 billion litres of US ethanol.
Impact on UK Businesses
• UK Prime Minister Sir Keir Starmer emphasized the deal would protect thousands of jobs in key sectors, particularly automotive manufacturing and steel.
• The National Farmers’ Union expressed concern that agricultural sectors bear an unfair burden due to these tariff removals.
Market Reactions
• US Markets:
• Stocks rose on hopes of future trade agreements, including with China.
• S&P 500 increased by over 1%, closing 0.6% higher.
• Asian Markets:
• Japan’s Topix up 1.3%.
• Taiwan’s index increased by 1.7%.
• Chinese markets remained flat.
Ongoing Negotiations and Future Plans
• Both nations agreed to continue negotiating tariff reductions for key sectors like pharmaceuticals.
• The deal includes a digital trade agreement to address US concerns about the UK’s digital services tax targeting large tech companies.
• The UK has secured preferential treatment if the US raises tariffs on pharmaceuticals and other sectors in the future.
Reactions and Criticism
• Supportive Statements:
• President Trump described the agreement as “full and comprehensive.”
• Starmer called it historic but cautioned it was just the beginning: “This is jobs saved, not job done.”
• Criticism:
• Conservative trade spokesperson Andrew Griffith labeled it a “Diet Coke deal, not the real thing.”
• Tory leader Kemi Badenoch stated, “We’ve just been shafted.”
Legal Concerns
• Trade experts raised questions about compliance with World Trade Organization (WTO) rules, specifically the “most favoured nation” principle, which requires equal tariff treatment to all countries unless part of comprehensive bilateral trade deals.
• Ignacio García Bercero of the Bruegel think-tank noted potential legal risks due to preferential tariff concessions.
• Other legal experts indicated the WTO allows phased implementation of trade deals, potentially deferring legal challenges.
Global Context
• The US-UK agreement may serve as a model for future American trade negotiations with other countries such as India, Vietnam, Japan, and South Korea.
• Trump indicated that the 10% tariff rate set with the UK might be the lowest template, suggesting higher rates could apply to countries with larger trade surpluses with the US.
What Might Happen Next
• Further Negotiations: The UK and US are likely to continue talks on expanding the scope of the agreement, particularly around pharmaceuticals, digital services, and financial regulations.
• Legal Review: International scrutiny may increase if the WTO challenges the legality of the deal’s selective tariff concessions.
• Global Influence: If successful, this deal could influence how other countries approach trade talks with the US, shaping global trade norms.
• Domestic Pressure: UK political and industry voices may push for greater protections or compensation for sectors like agriculture that feel sidelined.
• Impact on Future US Tariffs: Preferential treatment clauses might limit the effect of any new US tariff hikes on UK exports, giving the UK a head start over other trading partners.
