Trade Triumph or Token Gesture? Unpacking the Latest UK-US Tariff Deal
The UK and US have reached a tentative tariff agreement affecting several goods in their trade relationship, amid President Trump’s ongoing framework of global tariffs. While the blanket 10% tariffs on most UK imports will remain, this deal aims to ameliorate some economic tensions, resulting in reductions or eliminations of tariffs on key UK exports including cars, steel, and aluminum.
Key Highlights of the Deal:
Car Exports:
- Originally facing a 25% tariff, UK cars now enjoy a reduced 10% import tax for the first 100,000 cars exported to the US. Exports exceeding this quota will incur a hefty 27.5% tax. This change is crucial for the UK’s automotive sector, particularly for companies like Jaguar Land Rover.
The deal signifies a major economic pillar with cars valued at approximately £9bn last year, making it the UK’s largest export to the US.
It remains uncertain if the UK will amend its own 10% tax on US cars, though discussions hint at a possible reduction to 2.5%.
2. Steel and Aluminium Tariffs:
- The 25% tariffs on US steel and aluminum imports have been removed, with quotas now imposed for further UK exports, although the specifics are still being determined. This is particularly beneficial for companies like British Steel, which struggled under previous tariffs.
The UK’s total steel and aluminum exports are modest, but the tariffs also encompass derivative products worth about £2.2bn.
3. Pharmaceuticals:
- Future negotiations are expected over pharmaceutical tariffs, as both nations aim for preferential treatment, although specifics remain undisclosed. The UK’s considerable pharmaceutical trade, valued at around £6.6bn, makes this a pivotal area of focus.
4. Digital Services Tax:
- The UK’s 2% digital services tax on US tech companies remains unchanged, despite anticipations for modification. Future plans are in place for a digital trade deal that may streamline processes for UK businesses exporting to the US.
This tax generated nearly £360m from US tech firms in its inaugural year.
5. Agricultural Imports:
- The agreement lifts the 20% tariff on US beef under a quota increase from 1,000 to 13,000 metric tons. In exchange, the UK gains a similar quota for tariff-free exports of British goods, marking a notable first for UK farmers.
Importantly, UK food standards will remain stringent, resisting demands for relaxation regarding the use of growth hormones in US beef production.
6. Ethanol Tariff:
- A tariff on ethanol imports from the US has been eliminated, further easing trade barriers.
Overall, this deal, deemed a “major trade deal” by Trump, is more a step in negotiations rather than a comprehensive trade agreement, requiring approval from Congress. It sets the stage for months of complex discussions ahead, with industry leaders cautiously optimistic about the potential outcomes for UK exports.