Deal or dud? The reality of the US-UK trade agreement
What’s really behind the UK-US trade deal? Amy Tinley, our Deputy Managing Director and former special adviser in the Department for International Trade, looks behind the 'historic' deal headlines and what it means for business.
The world of trade, usually reserved for the wonkiest of policy wonks because - let's face it - very few people really understand it, is now the hottest topic. Not only did we all have to endure the US President’s “Liberation Day” just a month ago, but now, the UK has not only announced its largest post-Brexit trade deal - with India and worth £5bn to the UK economy - but saw a US-UK deal announced yesterday.
Against the backdrop of largely woeful economic news, this is a serious boon to the Prime Minister.
The fact that the UK is the first country in the world to agree a deal with Donald Trump in the new world order is an achievement not to be shirked at. The markets have been buoyed knowing that this UK-US deal could chart a path for other countries to agree to similar ones.
But is this deal as good as No 10 is claiming?
As a former special adviser in the Department for International Trade during Trump’s first presidency and the Brexit negotiations, here are my top six things to watch out for:
This isn’t the deal that was on the table in previous years
Let’s be realistic, the US and UK have been "negotiating" a trade agreement for A LOT longer than February. And, although Starmer and Trump have patted themselves on the back for being the two premiers that managed to get a deal over the line, this is not the deal that was on the table during Trump’s first term in office, or since my day stalking the corridors of power.
It is a deal, don’t get me wrong, but a “full and comprehensive” trade agreement it ain’t. Its focus is very narrow. Its purpose was to remove some of the damage imposed by Trump in April rather than advance the UK or US interests in the long-term. What’s more, it still largely puts the UK in a worse position than it was before “Liberation Day”.
Crucially, it also cements the 10% general tariff in place - aside from on steel, aluminium and Rolls Royce engines. The economic impact of this ‘historic deal’ is likely to be small.
2. Where are the missing billions?
Starmer hailed this deal in the national interest. But is it really? Details are too scant at this stage to truly know (with an announcement coming before the text is complete).
What we do know is that White House has announced $5bn in benefits to the US for exporters under this deal. The tariffs have been reduced to zero on bioethanol and beef (not the hormone injected variety, more on that below). The tariff applied to US ethanol imports in the U.K. varied between 10% and 50%, depending on what it is being used for - so a considerable saving for some US exporters.
If, as the White House also claimed, the savings on bioethanol and beef exports add up to $1bn - where’s the missing $4bn?
The devil is in the detail here, and something doesn’t add up.
3. The agriculture wars aren’t over
Agriculture is always one of the key sticking points in getting any trade agreements over the line. The inclusion of beef is symbolic as much as anything else. The US isn’t a big market for UK beef, and a reciprocal deal for 13,000 tonnes means that both sides win - sort of. But it also proves that the UK can do a deal with the US that doesn’t lower the UK’s high food standards and force us to stock our supermarket shelves with chlorine washed chicken and hormone injected beef - currently illegal in the UK.
Starmer wants us to trust him; allay the concerns of the huge and vocal food and farming lobby; and show his backbenches that he can do deals without lowering standards.
But this symbolic move is just the beginning. The US has seen an opening and won’t let this go. If we think the UK farming lobby is loud, this is nothing compared to the US. SPS (sanitary and phytosanitary standards) have been written into this agreement, but that doesn’t mean the debate will go away. And Trump's ailing polls could do with a boost from his agricultural base.
4. The diplomatic tightrope walk
Starmer will be thanking his lucky stars that he managed to pull some sort of a deal out of the bag before the upcoming UK-EU summit on May 19th. The PM has invited the great and the good to London to negotiate a “better” deal with the EU than Boris managed. The UK-US deal proves that the UK has the international clout to pull a deal out of the bag where others have failed. One that doesn’t, from what we know at the moment, make too many unpopular concessions.
The Chancellor Rachel Reeves had recently suggested relations with the EU were a greater priority than a deal with the US. Expectations now will be high and the pressure will be on.
Aligning with US trade practices while maintaining compatibility with EU standards presents a complex challenge, not to mention the details of the US deal haven’t yet been fleshed out. Starmer must carefully manage these relationships to avoid regulatory conflicts that could impede trade flows with either partner.
5. The plight of UK manufacturers
Trump hailed a great deal for the US ethanol producers. From a UK perspective, we don’t yet know what impact this will have on the UK’s own bioethanol manufacturers. Whilst there is a win for the UK car industry with tariffs down to 10%, this is still far above the 2.5% that existed pre “Liberation Day”.
But more than that, the overall trade landscape eclipses any upside from this deal as tariffs imposed on European nations and China will have knock-on effects in the UK: rising prices and the potential dumping of low-cost products in the UK as cheaper goods locked out of the US try to find a home elsewhere.
We are yet to see what continuing high tariffs elsewhere will do to the UK economy longer term and what the impacts might be on product costs, inflation and jobs across the UK manufacturing sector.
6. The digital divide
The government’s own language says “The Digital Services Tax remains unchanged as part of today’s deal”. So, the 2% duty charged on big tech giants at the UK border remains. Yet, with a new, sleeker digital trade deal promised, one the Biden administration was keen to take up with the UK, the danger is not over yet.
The US has been promised a deal that reduces red tape and provides more access to the UK market. Starmer must maintain his red lines on online safety rules and ensure that they are safeguarded in any future deal. That’s a political hot potato, and given the fractious, near mutinous backbenchers within Labour’s Parliamentary Party, this is a line Starmer knows he just can’t give up.
The tax only raises around £800m - predicted to rise to £1.2bn by the end of the decade - but with the fiscal environment so tight the Chancellor needs every penny she can get. Politically, she also would struggle to sell a £1.2bn tax cut for big tech alongside the cuts to Winter Fuel Payments that save £1.4bn.
Starmer said yesterday that he would go “further and faster” in the national interest. It could well be impossible to move any faster in the world of trade deals, and we’re yet to see what further really means. This deal might offer good headlines, but until we see the full text and consequences, we should temper the triumphalism.
Trade is slow, detailed, and fraught with compromise — and this might be only the first, uncertain step.