The United Kingdom and the United States finalised a targeted trade arrangement last week, easing tariffs on select goods traded between the two countries.
While much of the import tax regime introduced by former President Donald Trump remains in place—such as the blanket 10% levy on UK exports to the US—this new agreement offers relief in several key areas, including automobiles, metals, and aerospace components.
Not a Full Trade Deal
Despite being promoted on social media as a “major trade deal,” this agreement does not constitute a comprehensive free-trade pact. Only Congress has the authority to approve such an arrangement, and that process typically spans months. Instead, this is a temporary and narrow deal that reverses or reduces some existing tariffs on specific items. Legal and diplomatic negotiations are expected to continue for some time.
Tariffs on UK Cars Lowered, But With Limits
One of the major changes includes a cut to US tariffs on British cars. Previously, UK vehicles faced a 25% import duty on top of a standard 2.5% tax. Under the new terms, that rate drops to 10%—but only for up to 100,000 cars annually. Any exports exceeding that quota will face a higher 27.5% charge. Given that the UK exported roughly that number of cars to the US last year, the deal may act as a cap on growth.
The UK still imposes a 10% import duty on American cars. It’s unclear if that will change, although US officials have pushed for a reduction to 2.5%, and UK Chancellor Rachel Reeves has signaled openness to negotiations.
Jaguar Land Rover, which sends about a quarter of its vehicles to the US, praised the agreement for offering more stability to the sector. However, industry experts have expressed concern that the export quota could restrict future expansion.
Steel and Aluminium Tariffs Scrapped—With Conditions
The US has removed its 25% tariffs on UK steel and aluminium, originally implemented in March. This change is expected to benefit firms like British Steel, which has faced operational challenges. However, the new deal introduces a quota system, and specific details—such as qualifying volumes and supply chain criteria—remain to be clarified.
Although direct steel and aluminium exports to the US are relatively modest (£700 million), many UK products that include these materials—like machinery and gym equipment—are worth much more, totalling around £2.2 billion last year. Industry group Steel UK has welcomed the change but noted that companies need more information before they can take full advantage of the revised rules.
Pharmaceuticals Await Further Negotiation
The two countries agreed to continue talks on pharmaceutical tariffs. Medicines are the UK’s second-largest export to the US, bringing in £6.6 billion last year. The US also sends around £4 billion worth of pharmaceuticals to the UK. While most countries, including the US, typically avoid imposing tariffs on finished medications, no concrete outcomes have been announced for this sector yet.
No Progress on Digital Services Tax
The UK’s digital services tax—2% on revenues from online platforms with significant UK user bases—remains unchanged. US tech giants like Google, Meta, and Apple are among those affected, and Washington has criticized the tax as unfair. In its first year, the levy generated nearly £360 million from American firms.
While both governments have agreed to explore a broader digital trade framework, the digital services tax remains a sticking point, with the US calling for its immediate removal.
