UK and US herald a 'breakthrough' trade deal with more talks to come

LONDON/WASHINGTON: United States President Donald Trump and British Prime Minister Keir Starmer on Thursday (May 8) announced a "breakthrough deal" on trade that leaves in place a 10 per cent tariff on many goods imported from the UK, but includes duty-free steel.

The UK will be able to export 100,000 cars to the US annually, which will pay a 10 per cent tariff, down from its current 27.5 per cent, according to the UK government. The UK exported 92,000 cars to the US in 2024.

Britain agreed to lower its tariffs to 1.8 per cent from 5.1 per cent and provide greater access to US goods such as US beef, ethanol, and other agricultural products, the White House said. The UK will eliminate its tariff on ethanol from the US.

"It opens up a tremendous market for us," Trump said.

"This is a really fantastic, historic day," Starmer said by teleconference.

The US has been under pressure from investors to strike deals to de-escalate its tariff war after Trump's often chaotic policymaking upended global trade with friends and foe alike, threatening to stoke inflation and start a recession.

Top US officials have engaged in a flurry of meetings with trading partners since the president on Apr 2 imposed a 10 per cent tariff on most countries, along with higher rates for many trading partners that were then suspended for 90 days.

The US has also imposed 25 per cent tariffs on autos, steel and aluminium, 25 per cent tariffs on Canada and Mexico, and 145 per cent tariffs on China. US and Chinese officials are due to hold talks in Switzerland on Saturday.

WARM RELATIONSHIP

With the British economy struggling to grow, the tariffs had added to the pressure on his government.

Jaguar Land Rover paused its shipments to the US for a month and the government was forced to seize control of British Steel to keep it operating.

While seeking a deal with the US, Britain had refused to lower its food standards, which are closely aligned with the European Union. However, Britain's farming trade union has said that some US producers who do not use growth hormones or antimicrobial washes could be given greater market access.

Initial news of an announcement sent shares in luxury carmaker Aston Martin up 10 per cent, while British retailers with operations in the US, including JD Sports and Primark owner AB Foods, also rose.

TRADE TIGHTROPE

Starmer's government has been seeking to build new trading relationships post-Brexit with the US, China and the EU without moving so far towards one bloc that it angers the others.

Economists and one FTSE 100 chief executive said the immediate economic impact of a tariff deal was likely to be limited but that trade agreements in general would help long-term growth. Britain also struck a free trade agreement with India this week.

There are some domestic political risks, though. Polling shows the government remains unpopular, making any move to cut taxes on multi-national tech companies a big risk.

Britain's digital service tax, levied at 2 per cent of UK revenue for online marketplaces, search engines and social media platforms, was introduced in 2020 in response to an outcry about tax avoidance by big tech.

It was expected to raise about £$800 million (US$1.1 billion) this year, but companies such as Google and Amazon have passed the cost on to customers through ad surcharges and higher selling fees, respectively.

"The American, Indian and other deals we can do will be really important to the long-term economic health of the UK, but don't expect them to result in overnight euphoria," the CEO said, speaking on condition of anonymity.