U.S. President Donald Trump makes an announcement about a trade deal with the U.K., in the Oval Office at the White House in Washington, D.C., U.S., May 8, 2025. REUTERS/Leah Millis
May 8, 2025
U.S. President Donald Trump and British Prime Minister Keir Starmer announced a preliminary bilateral trade deal on Thursday, which maintains key U.S. tariffs on British exports while providing limited new market access. The agreement reduces U.S. tariffs on British cars and increases agricultural access for both countries, marking the first in a series of planned tariff-lowering agreements from the United States.
Key Features of the Trade Deal
- Auto Tariffs: U.S. tariffs on British cars will be reduced from 27.5% to 10% for a quota of 100,000 vehicles, approximately equivalent to the total number of British cars exported to the U.S. in the previous year.
- Steel and Aluminum: The 25% U.S. tariffs on UK steel imports will be eliminated, while British tariffs on U.S. ethanol will drop from 19% to zero.
- Agriculture: The agreement grants tariff-free quotas for 13,000 metric tonnes of beef for UK farmers, without weakening UK food standards on U.S. imports, particularly concerning hormone-treated beef.
- Aircraft and Automotive Industries: The UK is expected to purchase $10 billion worth of Boeing aircraft, while U.S. tariffs on Rolls-Royce jet engines will be lifted. The deal could generate $5 billion in new export opportunities for the U.S. while maintaining tariffs that could bring in $6 billion in revenue.
Economic and Political Context
The trade agreement follows a series of reciprocal tariffs imposed by Trump on 57 trading partners, including the European Union, as part of a broader effort to reduce the U.S. goods trade deficit. The deal comes amid global pressure on the U.S. to mitigate the economic impact of its tariff war.
Trump framed the UK deal as a positive precedent, noting that other trade partners with larger U.S. trade surpluses may face higher final tariffs. He emphasized the deal’s potential to increase market access, while Starmer celebrated it as a “breakthrough” for U.S.-UK trade relations, which could protect and create jobs.
Challenges and Further Negotiations
Despite the deal, major obstacles remain. Trump has imposed steep 25% tariffs on auto imports and launched new investigations on pharmaceuticals, copper, lumber, and semiconductors. The U.S.-China trade tensions remain high, with 145% and 125% reciprocal tariffs respectively, and negotiations scheduled in Switzerland.
Economists have noted that the immediate economic impact of the U.S.-UK deal may be limited, though it could support long-term growth. However, maintaining a balance between trade with the U.S., China, and the EU remains politically sensitive for the Starmer administration.
Domestic Reactions
The UK government faced pressure due to U.S. tariffs, with companies like Jaguar Land Rover pausing shipments and the government intervening to support British Steel. Industry responses have been mixed, with Aston Martin shares rising by 10% following the announcement.
Some concerns remain about the pharmaceutical sector, as the impact on imports of UK pharmaceuticals remains unclear. British digital service taxes on multinational tech companies will also continue unchanged, addressing concerns about potential tax cuts for large corporations.
COMMENTS