FTI Consulting UK Public Affairs Snapshot: Mission accomplished? Implications for the UK-US tariffs deal

Last Thursday, US President Donald Trump announced a long-awaited UK-US trade deal on a joint conference call with the UK Prime Minister, Sir Keir Starmer. With Trump hailing the UK as one of the US’ “closest and most cherished allies”, there was evident delight between the two leaders as they outlined the historic first-ever trade agreement between the transatlantic partners.

While the US-UK Economic Prosperity Deal (EPD) is light on detail and far shorter than a full comprehensive free trade agreement (FTA), it provides a degree of relief to a number of sectors of the UK economy still feeling the shock of the President’s “Liberation Day” tariffs. 

Speaking at Jaguar Land Rover’s West Midlands plant, the Prime Minister emphasised how the agreement would benefit the automotive industry, the biggest winner from the EPD. The deal reduces existing US tariffs of 27.5 per cent to 10 per cent for 100,000 UK vehicles every year – a comfort and even a competitive advantage for the industry.

The removal of the 25 per cent US tariff on the steel industry and a zero per cent tariff on exports of Rolls Royce engines and aeroplane parts to the US will also be welcome consolations to industry and likely the envy of other nations. This point is timely, given UK trade associations have been increasingly vocal on the negative impact of the tariffs on British jobs and supply chains.

The UK’s agriculture sector will not share the same sentiment. The EPD increases US market access for beef 13-fold, which is the most significant win from a US standpoint. Even if the British government is correct to say that the deal does not compromise UK food standards, this notoriously protectionist sector may face greater competition.

Tariff-free access for 1.4 billion litres of US ethanol and a commitment for the parties to work together on further market access will also be of concern to some UK businesses. The fact that UK beef exporters gain equivalent access to the US market is unlikely to mollify dissenting voices, but the Prime Minister will likely highlight the inclusion of compliance with sanitary and phytosanitary (SPS) criteria for agricultural exports to calm backbench MPs’ fears of compromises on food standards.

On pharmaceuticals, the agreement outlines that the transatlantic partners intend to promptly negotiate “significantly preferential” outcomes on tariffs once assigned. It is unclear at this stage what that actually means in practice. A full exemption, or carve out, for the UK continues to look unlikely, and the EPD provides “best endeavours” rather than clear commitments at this stage. Similarly, grounds for discussions of a “transformative technology partnership” will also need to be hammered out in due course.

At this stage, potential areas for any further concessions in future discussions remain unclear. Any reduction in the level of digital services tax paid by US tech firms or less burdensome requirements for US tech firms under the UK Online Safety Act – which the UK Technology Secretary said would not be up for negotiation – could mount apprehension for online safety advocates, with the deal confirming negotiations for “ambitious” digital trade provisions.

But finer details aside, this announcement is undoubtedly a political victory for Starmer. The Prime Minister has sought to paint the UK as an indispensable ally to the US since Trump’s inauguration, including inviting the President to a second state visit, now pencilled in for September.

The President’s “Liberation Day” tariffs stoked fears that this strategy had been made redundant, but the first trade agreement Trump has signed since his April announcements would seemingly vindicate Starmer’s strategy.

British officials will likely tout this as confirmation that the UK remains high on Trump’s priority list and a signal that UK-US relations – certainly from an economic standpoint – remain strong. The deal also provides political agency for the President to voice his credentials as a leader who can cut deals with foreign countries and follow through on his word, with this deal being the “first of many” he hopes to strike.

Yet while the agreement is certainly a political win, industry will be conscious that this is not a legally binding commitment. Its enforcement will depend on goodwill on both sides. Hence, why Starmer has emphasised that this marks the basis for future cooperation between the world’s two largest services exporters, implying that the UK will seek to make further amends to erode the 10 per cent universal US tariff that will remain in place on most goods.

Other world leaders will be watching closely to see how their potential agreements with the US in subsequent future deals compare. The EPD will be a key differentiator in establishing how the US administration views the UK in comparison to the EU, for instance, should the bloc reach an agreement with the US.

But in an increasingly uncertain geopolitical environment, this progress provides positive steer for the UK and a degree of reassurance to calm markets in the short-term. The long-term test will be whether the deal will, in practice, set a path for further progress – and potential concessions – in a world order now guided by the Art of the Deal.