US and UK Ink Trade Deal Amid Tariff Concerns
The United States and the United Kingdom have formalized a trade agreement, marking the first such accord since President Donald Trump initiated sweeping tariffs on numerous trading partners earlier in the year. This agreement aims to reduce tariffs on steel and automobiles and facilitate increased exports of American products like beef and ethanol to the UK, as stated in a White House press release.
President Trump hailed the deal as a "great" outcome for both nations. However, economists remain skeptical about its immediate impact on American consumers who are concerned about rising household costs due to tariffs.
The existing trade dynamic between the US and the UK already favors the former, with a $12 billion trade surplus. This means the US exports significantly more goods to the UK than it imports. Furthermore, the 10% baseline tariff imposed by President Trump in April will remain in place for the majority of UK imports, potentially leading to increased prices for consumers.
Despite these concerns, some experts see a silver lining. Gary Hufbauer, a nonresident senior fellow at the Peterson Institute for International Economics, suggests that this agreement could signal a broader shift in trade policy. While the direct impact of the UK agreement on the average consumer might be limited, it could pave the way for more comprehensive trade deals, potentially reversing President Trump’s "extreme tariff agenda."
The United Kingdom, while a significant historical ally and trading partner, trails behind several other nations in terms of its share of US international trade. The countries most affected by President Trump’s tariffs – China, Canada, and Mexico – are the US’s largest trading partners, supplying nearly half of the foreign goods consumed in the US, according to data from the Census Bureau.
In 2024, Americans consumed $68 billion worth of goods produced in the UK, representing approximately 2% of total US imports. Concurrently, the US exported nearly $80 billion in products to the UK, accounting for roughly 4% of total American exports.
According to a detailed analysis of 2024 trade data, the top imported goods from the UK included cars and aircraft, valued at $14 billion, followed by machinery at approximately $13 billion and miscellaneous goods, such as surgical devices, musical instruments, and antiques, totaling $12 billion.
Major US exports to the UK encompassed nearly $15 billion in fuel, $13 billion in precious stones and jewelry, and $12 billion in aircraft and auto parts.
Several UK luxury automakers are expected to benefit from the agreement, which reduces the 25% auto import tariff to 10% for the first 100,000 vehicles imported into the US each year. President Trump stated that this exemption was made to support high-end UK vehicles from brands such as Rolls-Royce, Bentley, and Jaguar, referring to them as "special" cars produced in limited quantities.
The agreement also exempts the UK from the 25% tariffs on steel and aluminum. This change, according to Hufbauer, could alleviate price pressures on US industries that rely on imported metal, including construction, auto manufacturing, and home appliances. However, it’s important to note that the US imports a significantly larger share of steel from other countries. Canada, Brazil, Mexico, South Korea, and Vietnam supplied nearly two-thirds of steel mill product imports in 2024, according to the American Iron and Steel Institute, a trade association.
Further trade talks could potentially lead to lower pharmaceutical prices, according to Hufbauer. Chemicals, which include pharmaceuticals, accounted for more than 17% of the UK’s exports to the US in 2024. President Trump has previously threatened a major tariff on pharmaceuticals. A news release from the UK government stated that "work will continue on the remaining sectors – such as pharmaceuticals and remaining reciprocal tariffs."
However, the majority of imports from the UK will still be subject to a 10% tariff. Desmond Lachman, senior fellow at the American Enterprise Institute, a conservative think tank, noted that consumers have "got relief by not getting hit by further increases in tariffs." Nevertheless, he emphasized that "there are going to be a whole lot of goods coming from the U.K. that are going to cost 10% more."
Lachman suggested that the UK agreement could be a precursor to larger trade deals, such as negotiations with China. Treasury Secretary Scott Bessent and chief trade negotiator Jamieson Greer are scheduled to meet with China’s top economic official in Switzerland this week, potentially initiating a de-escalation of the ongoing trade war. "That’s the one that’s key for the United States if you’re worried about the consumer," Lachman stated. "If they don’t get a deal with those people, a lot of the retails are warning that there’s going to be empty shelves, there’s going to be higher prices."
In 2024, China, which faces 145% tariffs on most goods, sent $438.9 billion worth of goods to the US, compared to the UK’s $68 billion, according to Census Bureau data.
Over the long term, some economists express concern that the frequent changes in tariffs could strain relationships between the US and its trading partners. Peter Debaere, an international economist and professor at the University of Virginia’s Darden School of Business, emphasized the importance of trust in trade relationships. "Trust is needed for any transaction. If you lose that, people will invest less. They’ll want to trade less," he said. "These are effects you will not see right away, but they are much more serious." The stability and predictability of trade policies are crucial for fostering long-term economic growth and international cooperation. The potential erosion of trust due to fluctuating tariffs could have far-reaching consequences for global trade and investment flows.
