Duncan Edwards of BritishAmerican Business and Rebecca Spayne of ITM analyse the 2025 US-UK tariff trade deal, its sectoral impact, political motivations, and the road toward prosperity
On 8 May 2025, the United States and United Kingdom announced a new bilateral trade agreement aimed at reversing a sharp rise in tariffs introduced in April by President Donald Trump’s administration. This move came just weeks after sudden tariff increases—up to 27.5%—on key UK exports, including automobiles and steel, sent shockwaves through UK industries reliant on the transatlantic trade corridor.
The agreement marks the first concrete step towards what is being termed the “Economic Prosperity Deal” (EPD), an ambitious framework intended to deepen economic cooperation between the two countries across digital trade, supply chains, investment screening and physical goods. Though the announcement was welcomed with cautious optimism, analysts and trade bodies alike have underlined that this deal represents a foundation, not the culmination, of transatlantic trade realignment.
Historically, the US and UK have enjoyed a close trade relationship, bolstered by shared regulatory standards, cultural ties and mutual geopolitical interests. However, post-Brexit Britain has struggled to negotiate standalone free trade agreements to replace those it held under EU membership. The anticipated UK-US Free Trade Agreement (FTA), once championed as a flagship post-Brexit success, has remained elusive, stymied by shifting administrations, political priorities, and increasing global trade complexity.
Against this backdrop, the 2025 tariff agreement has been positioned as a reset button—reinstating confidence in the relationship, while offering the potential for more substantive engagement in the near future.
Key Terms of the Agreement
At its core, the new US-UK tariff arrangement aims to mitigate the most immediate commercial disruptions caused by the unilateral tariff hikes of April 2025. Among the most significant developments is the reduction of tariffs on UK car and car part exports to the US from a punitive 27.5% to 10%—applicable for up to 100,000 units. While this remains higher than the 2.5% pre-April rate, it averts what many feared would be existential damage to the UK automotive sector.
Equally important is the elimination of tariffs on UK steel and aluminium exports. These industries had previously suffered under Section 232 tariffs introduced in 2018, which were only partially rolled back during the Biden administration. Their reinstatement by Trump had reignited tensions and uncertainty for manufacturers on both sides of the Atlantic.
Other sectoral provisions include enhanced access to beef markets in both directions, as well as the liberalisation of ethanol trade, particularly favouring US exporters targeting UK fuel and bioenergy markets.
However, while these headline measures offer short-term relief, their implementation is contingent on internal legislative processes in both countries. US ratification requires navigating Congressional and administrative channels that may delay enactment, particularly given election cycle distractions and lobbying from domestic industry groups.
Crucially, the agreement serves as a political signal. As Duncan Edwards, CEO of BritishAmerican Business, noted, “The real upside of this announcement will lie in the future negotiation of the bigger Economic Prosperity Deal itself.” The current agreement is positioned as a confidence-building mechanism—meant to lay the groundwork for deeper economic integration.
Political Dynamics and Strategic Motivations
Beyond the economic details, the US-UK tariff agreement is steeped in political calculation. On the US side, the deal arrives in the context of a critical election year. The Trump administration’s decision to raise tariffs in April 2025 was widely seen as part of a broader strategy to appeal to domestic manufacturing and agricultural constituencies. By subsequently easing those tariffs for a close ally, the White House projects strength while demonstrating diplomatic pragmatism. The agreement enables President Trump to claim victories for American workers, particularly in key states, without conceding broader trade liberalisation.
For the UK, the timing is equally strategic. Post-Brexit Britain has struggled to deliver visible trade wins. With negotiations stalled elsewhere and exporters rattled by April’s tariff shock, resolving tensions with Washington offered the Starmer’s government a much-needed diplomatic success. Becoming the first nation to strike a new trade accord under the current US administration also underscores the UK’s enduring geopolitical relevance.
Crucially, the deal carries symbolic weight. It positions both countries as champions of “friend-shoring” and economic resilience among allies—amid rising global protectionism and strategic competition with China. The commitment to explore a broader Economic Prosperity Deal further reinforces this trajectory, allowing both governments to show momentum without triggering complex ratification hurdles.
In essence, the agreement reflects more than just economic compromise. It demonstrates how trade policy continues to serve as a tool of foreign policy and electoral strategy—underscoring the interplay between commercial pragmatism and political narrative on both sides of the Atlantic.
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