US and United Kingdom sign limited trade deal

The US and the United Kingdom have signed a significant trade agreement after years of negotiations.

Under the agreement, the 10% “reciprocal” tariff rate applied to British goods remains unchanged, while the United Kingdom will benefit from exemptions on steel and automobiles and increased market access for agricultural exports.

The agreement also leaves the door open for further negotiations in the future. US President Donald Trump told reporters in the Oval Office, “The final details will be written in the coming weeks.”

Speaking by phone at the White House press conference, UK Prime Minister Keir Starmer described the agreement as “historic,” stating, “This will increase trade between our countries. It will not only protect jobs but also create employment and open up market access.”

Although the agreement is far from a comprehensive free trade agreement, the United Kingdom became the first country to sign such a deal with Trump.

British automotive sector breathes a sigh of relief

The most significant change is the exemption from the general 25% additional tariff applied to steel, aluminum, and automobiles. Under the agreement, tariffs on British car exports will be reduced to 10%, with an annual quota of 100,000 units.

British prime ministerial sources say this figure is almost equal to the total amount the United Kingdom exported last year. If this quota is exceeded, vehicles will be subject to the 25% tariff.

On the other hand, this rate is four times the 2.5% tariff the UK benefited from before Trump’s second presidential term.

Nevertheless, the reduction in tariffs will provide much-needed relief to British car manufacturers, who exported £9 billion last year and are the United Kingdom’s largest goods exporter to the US.

Reciprocal steps in the steel and aerospace sectors

The agreement completely removes tariffs for the UK’s struggling steel industry, which is facing a crisis under the threat of blast furnace closures and job losses.

The US is currently the United Kingdom’s second most important steel export market after the EU: the American market accounts for 9% of the country’s steel exports by value and 7% by volume.

The US also promises exemptions for UK aerospace parts, while in return, the United Kingdom gains “preferential access” to aerospace components.

Speaking in the Oval Office, US Commerce Secretary Howard Lutnick said, “We have agreed to allow Rolls Royce engines and aircraft parts of that nature to be imported tariff-free.”

Initially, aerospace parts, including those previously exempted for security reasons, were included in the general 10% reciprocal tariff.

London did not compromise on digital tax

It came as a surprise to many that the United Kingdom did not compromise on the digital services tax despite US pressure to reduce the tax. The 2% tax targets the revenues of tech giants like Amazon, Meta, and Google and is estimated to generate £800 million this year. This tax had long drawn criticism from the US on the grounds that it discriminated against American companies.

But as POLITICO first reported on Thursday, the tax did not change as part of the agreement.

Instead, both countries decided to work on a digital trade agreement to eliminate bureaucracy for exporters and simplify customs procedures.

Christine Bliss, President of the Coalition of Services Industries, said in a statement, “The UK’s digital services tax needs to be discussed and addressed in more detail to ensure it is applied fairly to American service providers.”

The technology agreement also envisages greater cooperation in areas such as biotechnology, life sciences, quantum computing, nuclear fusion, and aerospace.

There was also no compromise on the United Kingdom’s online safety rules, which was a great relief for campaigners.

The London government had announced last month, under pressure from Washington, that online safety rules would be reviewed in trade talks with the US, drawing significant backlash.

The United Kingdom’s US Ambassador Peter Mandelson told POLITICO he was “very pleased with the outcome,” adding that his country had “achieved all its main demands and that the agreement will now open the door to a deeper and longer-term US-UK technology partnership.”

Reciprocal market openness and food standards in agriculture

In a move met with skepticism by the agricultural lobby in Great Britain, the countries signed a new reciprocal market access agreement on beef. Under the agreement, British farmers were granted a tariff-free quota of 13,000 metric tons and a reduced tariff rate of between 4% and 10%.

On the other hand, US farmers will also be able to export the same amount of beef to the UK tariff-free.

But more importantly, all imported meat must comply with United Kingdom food standards. This means British farmers can breathe a sigh of relief that hormone-treated beef will not be arriving at their doors anytime soon.

Food standards had been a contentious issue since the United Kingdom-US free trade agreement negotiations began under the first Trump administration in May 2020.

A boon for ethanol exports to the US

In a surprise move, the US was also granted a new tariff-free ethanol quota for the first 1.4 billion liters. Previously, US ethanol exported to the United Kingdom was subject to a tariff of between 10% and 50%, depending on its use.

Speaking at the White House press conference, Trump said the agreement would “significantly” increase market access for American beef, ethanol, and almost all products produced by large farmers.

According to White House documents, the agreement will create “$5 billion in new export opportunities for US farmers, ranchers, and producers.” More than $700 million of this figure will come from ethanol exports, and $250 million from other agricultural products such as beef.

Tom Bradshaw, President of the National Farmers Union, said, “Our biggest concern is that the heavy burden of tariff removal in other sectors of the economy is being placed on the shoulders of two agricultural sectors,” adding that British agriculture “cannot continue to bear such imbalances in future negotiations.”

Bradshaw also added that the inclusion of bioethanol in the agreement “raises concerns for British arable farmers,” and said they were examining what this means for the sustainability of domestic bioethanol production and its potential impact on their members.

The White House also announced that the countries have decided to work together to improve industrial and agricultural market access.

Preferential treatment for pharmaceuticals

The agreement will also allow Britain to negotiate a preferential outcome on pharmaceutical tariffs, even though the US has not yet imposed tariffs on pharmaceuticals.

Pharmaceuticals are the United Kingdom’s second largest export item to the US. The UK exported £6.6 billion worth of pharmaceuticals last year, and this figure accounted for 11.1% of the country’s total exports to the US.

On April 1, Trump launched an investigation into the impact of pharmaceutical imports on national security and announced on Tuesday that he would impose tariffs on this sector “in the next two weeks.”

On the other hand, it is not yet clear whether the United Kingdom will receive preferential treatment regarding the tariffs Trump will impose on the film industry.

Over the weekend, the US President threatened to impose a 100% tariff on foreign films, saying that incentives offered by other countries to attract filmmakers to their countries posed a threat to US national security.

Caroline Dinenage, Chair of the Culture Committee, argued that tariffs on films were “contrary to the interests of American companies” due to “investments in UK facilities and talent based on intellectual property rights held by the US.”

Trade Secretary Jonathan Reynolds said, “At this stage, it is not clear exactly what kind of tariffs the US is proposing to apply in relation to films.”