Analysis of the US-UK Trade Agreement : Tariff Policy, Industrial Impact, and Future Outlook

On May 8, 2025 (EST), the United States and the United Kingdom officially announced the conclusion of their trade negotiations. President Donald Trump and Prime Minister Keir Starmer emphasized that this agreement would strengthen bilateral relations and enhance mutual benefits. This is the first bilateral trade deal concluded after President Trump’s announcement of sweeping global tariffs in April, and it is expected to influence future negotiations with other countries.

 

Changes in Tariff Policy and Key Details

The trade agreement announced by the Trump and Starmer administrations includes partial tariff reductions aimed at lowering logistics costs and expanding trade between the two countries. The key elements of this agreement are as follows.

 

Adjustment of Auto and Steel Tariffs

The US has agreed to sharply reduce tariffs on British automobiles to 10% (from the previous 27.5%, including MFN tariffs) for up to 100,000 vehicles annually. This quota matches the UK’s typical annual car exports to the US, offering significant benefits to the British automotive industry.

Additionally, the US has decided to eliminate the 25% tariffs on British steel and aluminum. While the White House described this as an “alternative arrangement” to Section 232 tariffs, the UK government has announced it as a tariff elimination.

However, the 10% baseline reciprocal tariff announced by President Trump in April remains in effect. According to US Commerce Secretary Howard Lutnick, this tariff is expected to generate $6 billion (about 8.4 trillion KRW) in revenue.

 

Market Opening and Additional Agreements

The UK will open its markets for ethanol, beef, agricultural products, and machinery to the US. This is expected to provide about $5 billion in additional opportunities for US exporters. The UK has also pledged to purchase $10 billion worth of Boeing aircraft, and tariff-free treatment will be applied to Rolls-Royce engines and aircraft parts.

Furthermore, the UK has committed to enhanced cooperation with the US on industrial and agricultural market access, streamlined customs procedures for US exports, and increased competitiveness for US firms in UK procurement markets.

Impact on Industrial Structure

This trade agreement is expected to have wide-ranging effects on the industrial structures of both countries, particularly in the automotive, steel, and aerospace sectors.

 

Automotive Industry Outlook

The reduction in tariffs on British cars will be a major boon for UK automakers. The 100,000-vehicle quota aligns with the UK's typical annual exports to the US, meaning the entire UK automotive sector stands to benefit. This is expected to significantly boost the competitiveness of UK car manufacturers in the US market.

It is also important to note the potential impact of this agreement on global automotive industry dynamics. As seen in the UK-Japan CEPA, tariff reductions have a direct effect on export competitiveness. Other auto-exporting countries, such as South Korea, are likely to accelerate similar negotiations with the US.

 

Steel and Aluminum Industry

The removal of tariffs on British steel and aluminum builds on the 2022 agreement between the US and UK, which aimed to preserve critical steel and aluminum industries and counter non-market excess capacity-particularly from China. This latest agreement is expected to stabilize supply chains in these sectors and strengthen Western cooperation against Chinese market dominance.

 

Aerospace Industry Benefits

The UK's commitment to purchase $10 billion in Boeing aircraft and the tariff-free treatment of Rolls-Royce engines and aircraft parts will further deepen aerospace industry cooperation between the two countries. This goes beyond simple trade to encompass technological collaboration and supply chain integration.

Nature and Limitations of the Agreement

This US-UK trade agreement is more of a foundational framework than a comprehensive free trade agreement (FTA). President Trump described it as a “first step” toward further trade deals, while Prime Minister Starmer noted that many details remain under negotiation.

JPMorgan analyst Allan Monks called the deal a “broad outline agreement,” with further bilateral negotiations required to finalize details. Former Bank of England policy maker Jonathan Haskel characterized it as a “short-term, partial deal covering only some products,” likening it more to an exemption from last month’s tariff barriers than a substantive agreement.

 

Impact on the Global Trade Environment

This deal is significant in the context of President Trump’s ongoing “tariff war” following his re-election. Similar agreements with South Korea, Japan, India, and Israel are reportedly imminent, and the US Treasury Secretary has prioritized restructuring trade regimes with Asian countries.

Of particular note are US-China trade negotiations. Treasury Secretary Bessent and USTR head Greer are scheduled to meet with Chinese Vice Premier He Lifeng and others on May 10–11 for the first round of US-China trade talks. President Trump has stated that the US is open for business if China brings serious proposals to the table.

Future Outlook and Implications

This US-UK trade agreement offers several key takeaways:

 

Selective Tariff Adjustment Approach

The Trump administration is maintaining a baseline 10% reciprocal tariff while selectively reducing or eliminating tariffs in specific sectors. This indicates a strategic trade policy focused on US interests rather than comprehensive trade liberalization.

 

Unresolved Digital Services Tax Issues

The Information Technology & Innovation Foundation (ITIF) has pointed out that the agreement does not address UK trade barriers targeting US tech firms, such as the UK’s Digital Services Tax (DST). This suggests that negotiations in the digital economy sector are still incomplete.

 

Potential for Further Agreements with Other Countries

President Trump has indicated that additional agreements with other countries are in “serious negotiation stages.” The model used in the UK deal is likely to be applied to negotiations with countries like South Korea, which has significant automotive and steel industries and should consider the UK case when formulating US negotiation strategies.

Conclusion

The US-UK trade agreement announced in May 2025 is a partial deal focused on selective tariff adjustments in key industries rather than a full-fledged free trade agreement. While tariff reductions in the automotive and steel sectors are expected to provide direct benefits, the ongoing 10% reciprocal tariff may limit the overall impact.

 

As the first bilateral deal concluded amid President Trump’s “tariff war,” this agreement serves as an important reference for future negotiations with other countries. Major trading partners, including South Korea, should closely analyze the UK case to develop their own negotiation strategies with the US.

 

The details of the trade agreement will continue to be negotiated over the coming weeks and months, with potential for it to evolve into a more comprehensive agreement. Investors, businesses, and governments should align their strategies with these evolving trade dynamics, paying particular attention to industries such as automotive, steel, and aerospace that are most affected.