US-UK trade deal: White Smoke?
Domestically this week looked set to be tough for the Prime Minister with his party losing 187 council seats and a humiliating by-election in Runcorn and Helsby to Reform UK last Thursday. While yesterday’s news of a new trade deal with the US will have offered him some, albeit limited, respite, his poor fortunes only continued when media attention interrupted the joint announcement with the President to cut to the Vatican and white smoke emerging from the Sistine Chapel.
The Prime Minister and his wider team have been upfront in their desire to reverse or at least mitigate the impact of Trump’s blanket 10% tariffs. With the US remaining the UK’s biggest trading partner, responsible for purchasing upwards of £200bn worth of British goods, Starmer and the Chancellor Rachel Reeves have been acutely aware of the importance of achieving this deal for the economy and their credibility.
Despite growing internal clamour to reverse policies such as the winter fuel payment cut and the rises to national insurance, Starmer can put his government’s work abroad down as a win. Indeed, while announcing the deal, Trump and his team were keen to heap praise on the UK saying he had an “external and internal bond” with the Prime Minister.
Building on the news earlier this week that he had achieved a new trade deal projected to be worth £4.8bn p.a. with India – something his Conservative predecessors failed to achieve – Starmer has ensured Britain has become the first country to break the US President’s protectionist front. Within Labour circles getting this deal over the line will go some way to keeping the wolves at bay and act as proof that the Government can deliver on their central mission, to achieve widespread economic growth.
Despite the initial positive discourse around achieving the deal, the devil, as always, ultimately lies in the detail. Going into these negotiations the UK was clear its priority lay in reducing Trump’s bumper tariff on steel, car and aluminium exports, while not giving up too much ground on agricultural standards, tech regulation and pharmaceuticals.
On the surface therefore, this initial framework looks to be a success. Starmer has negotiated down the 27.5% rate on cars to 10% (for the first 100,000 units) and abolished the 25% rate altogether on steel and aluminium, a move which will no doubt be welcomed by the 750,000 people employed in the automotive industry.
Meanwhile, Rolls Royce will be able to export engines and parts for aeroplanes to the US tariff free. The rate reduction was even championed by US Commerce Secretary Howard Lutnick who said it would save “tens of thousands of jobs” in UK manufacturing.
Other parties have inevitably attacked the terms of thedeal. Farming communities have taken umbrage with the concessions agreed on food imports where UK rates on agricultural products, soft drinks and ethanol have been slashed to zero – something opposition leader Kemi Badenoch has suggested had “shafted” us. While reciprocal market access on beef – giving UK farmers a tariff free quota for 13,000 metric tonnes of product – has also been agreed, Britain seems to have held up its demand on standards with a ban on hormone-treated beef and chlorinated chicken.
Sir Keir has made a point of forging a surprisingly warm relationship with Trump repeatedly calling him “Donald” on their televised shared phone call. While Starmer’s leveraging of Trump’s fondness for him and the UK has seemingly worked, as did his rather unsubtle handwritten invite to a State Visit delivered in person, today is emblematic of the tightrope he has been forced to walk on a global stage. Capitalising on what opposition figures have rather tongue-in-cheek referred to as “Brexit benefits,” Sir Keir has been able to act as a bridge between Trump and our European neighbours. Next week he will warmly welcome the latter with the hope to achieve an enhanced deal with the Bloc.
Although Trump has repeatedly used the language of a “a very large deal”, the agreement announced yesterday is limited and has instead carved out some exemptions for the UK from the wider tariff regime. The so called “temporary arrangement” will likely be the cornerstone of a fuller trade deal across the next year, something UK ambassador Rt. Hon Lord Peter Mandelson suggested could create new tech partnerships, with the industry likely to be at the centre of these further negotiations.
While the deal’s effect on the economy is yet to be determined, its symbolism may give businesses and voters more confidence in the current administration.
Below is an indicative list of the key provisions in the deal:
•Car export tariffs reduced from 27.5% to 10%. This will apply to a quota of 100,000 UK cars, almost the total the UK exported last year.
•Steel export tariffs reduced from 25% to 0%
•The tariff on ethanol imports from the US will be reduced to zero.
•Work will continue on “remaining sectors” including on technology where “a future UK- US technology partnership” remains a possibility. This could be in areas including “advanced technology, biotech, life sciences, quantum computing, nuclear fusion, aerospace and space”
•Agreement that the UK will get preferential treatment in any further tariffs imposed
•A new reciprocal market access agreement on beef, giving UK farmers a tariff free quota of 13,000 metric tonnes.
•A commitment there will be “no weakening of UK food standards on imports”
•The Digital Services Tax will remain unchanged. Instead, the UK and US have agreed to work on a digital trade deal that will strip back paperwork for British firms trying to export to the US