President Donald Trump secured his first trade agreement more than a month after “Liberation Day.” The United States established a preliminary arrangement with the United Kingdom, making it the first major US trading partner to get a deal done following the series of universal baseline and/or reciprocal tariffs. Both sides described it as a landmark pact, but will it equate to anything of substance for either economy? For some, every little bit helps. For others, it fell short of the hype.
US, UK Reach a Trade Deal
Politically, this was a critical deal for both President Trump and British Prime Minister Keir Starmer. The former has espoused for weeks that countries were practically begging the White House to get a deal done. The latter, taking a calmer approach to US tariffs, needed to prove that his strategy was superior to retaliation. They both got what they wanted. Economically? Time will tell.
The United States will leave its baseline 10% tariff intact on British goods entering the world's largest economy. This will generate approximately $6 billion in tariff revenues. However, senior administration officials made some concessions, including reducing the 25% tariff on British steel to 0% and lowering levies on various UK-made vehicles from 27.5% to 10%. Additionally, the US government will establish a quota to permit 100,000 British-made automobiles to enter the United States at a lower tariff rate.
Commerce Secretary Howard Lutnick told reporters at the Oval Office that the trade agreement will offer US exporters, particularly agricultural producers, a $5 billion opportunity as the world's sixth-largest economy opens market access. Ethanol and beef are the two main products that will significantly benefit: Britain will eradicate levies on ethanol and allow American farmers to ship more beef across the pond.
A key component of President Trump's trade pursuits has been tackling non-monetary trade barriers. According to the president, the US-UK blueprint will decrease or eliminate various non-tariff hurdles "that unfairly discriminate against American products." This will include removing loopholes that will bolster US companies' competitiveness in the country's procurement market, produce a secure supply chain for pharmaceutical products, and streamline customs procedures for US exports.
"The UK was largely closed, very much closed to trade, and now it’s opened," Trump said. Starmer, meanwhile, said by telephone that the deal will "boost trade between and across our countries," calling it "a really fantastic, historic day." While nothing was signed at the White House, Trump confirmed that an agreement would be finalized “in the coming weeks.” This could mean some additions, revisions, or deletions could happen before the dotted line is signed.
The Economics of the Trade Deal
Wall Street was ostensibly pleased by the US-UK announcement. The leading stock market benchmark averages picked up gains, with the blue-chip Dow Jones Industrial Average rallying as much as 500 points. US Treasury yields also surged, signaling traders might not be so gloomy. The US dollar also pared its year-to-date losses at a modest pace. Put simply, this is what investors want to see: President Trump beginning to sign trade deals that will chip away at the uncertainty.
But how much will it affect either economy? It might offer some advantages for the United States, such as fast-tracking US exports and promoting agriculture in a market that has been reluctant to consume American food items because of certain industry practices. Yet this new agreement might have been more imperative for the United Kingdom.
The United States accounts for nearly a fifth of British trade, behind the European Union (48%). It is also the largest market for British automobiles, representing a quarter of UK-made vehicle exports in 2024. Abolishing the tariffs could also stimulate the UK’s struggling steel and aluminum industry. Suffice it to say, the UK-US trade relationship is almost in perfect balance, with Washington recording a $11.9 billion surplus last year. In other words, the two economies are integrated perhaps more than any other US trade partnership.
What’s Next?
President Trump and other administration officials have stated that more trade agreements could be in the pipeline in the coming days. Indeed, the next major development will be when US and Chinese officials meet in Switzerland this week to talk trade and other economic issues. But if the broad UK outline is a sign of things to come, which the administration says it is, then it might be worth asking if the trillions of dollars in market losses in April and upending worldwide trade were worth it.
