UK Tariffs
On Thursday, May 8th, the US and the UK unveiled a new trade deal, marking the first bilateral trade agreement since the April 2 tariffs were established. Though the UK is a smaller trade partner with the US, the deal provides some additional clarity on the US’s tariff negotiations, which is important for the markets so that they can better assess the impacts on businesses and the economy (for more on this, see HERE at the 7:45 mark and HERE). The Details
While final details are pending, here is what we know so far: - A 10% baseline tariff will apply to most UK imports. The administration stated 10% will be the floor for future trade deals, establishing a baseline tariff rate going forward.
- The US will lower auto tariffs on UK cars from 27.5% to 10% for the first 100,000 cars imported annually (roughly in line with 2024 levels). Beyond that threshold, a 25% tariff will apply.
- Removal of tariffs on steel imports from the UK has been announced.
- U.S. exports to the UK will benefit from a reduced average tariff rate—down from 5.1% to 1.8%.
- The UK has agreed to discuss longstanding barriers related to ag standards, and agreed to import an additional $5b in US agricultural products.
- A UK-based airline has agreed to buy $10b of Boeing planes.
- The UK agrees to re-evaluate its 2% tax on digital services revenue, a key sticking point for US tech firms.
Why the Deal Matters …
This agreement offers an early glimpse into the administration’s evolving trade policy. Given that the trade relationship with the UK is one of the most balanced relationships we have, the 10% tariffs that remain in place can be viewed as the floor. From this, we can infer that countries with which the US runs persistent trade deficits will face steeper tariffs.
… But Not That Much
Though an important strategic partner, the U.K. is a relatively small trading partner in terms of volume. We are each other's largest source of foreign investment, we each employ about 1 million citizens of the other country, and our trade relationship has been relatively balanced: from 2010 and 2021, the US had seven years of goods surpluses with the UK, and it had five with us. Thus, it should be much easier to reach a trade deal compared with other countries who are currently in the administration’s cross hairs.
The administration is keen to announce new trade deals quickly over the course of the next several weeks. We will continue to keep you updated as new developments unfold.
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