Since Brexit, striking a trade deal with the US has been considered the holy grail of UK trade policy.
The US is a vital trading partner for the UK, with imports from and exports to the world’s largest economy accounting for over £300bn – almost £1 in every £6 of all UK trade around the world.
Keir Starmer is framing this deal as a huge victory for both his government and the UK. Supporters will say the deal is an exoneration of his approach to dealing with Donald Trump, which has seen Starmer heap praise on Trump’s statesmanship, hand out an invite to meet the king live on TV, and lobby for Trump’s Scottish golf course to be made the host of the Open golf championship.
Yet with the global economy faltering and the impact of the Trump tariffs starting to sink in, the question remains whether this deal will change much for the UK’s economic prospects in the long term.
What is actually in the deal?
Trump is framing this deal a vindication of his economic policies and the UK will not get any relief from the 10% baseline tariffs imposed on all goods exported to the US.
However, the US will remove tariffs on British steel and aluminium exports, one of the UK’s key aims while negotiating. It’s also good news for the Britain’s beleaguered automotive industry, which will see the rate on most cars exported to the US slashed from 27.5% to 10%. In response, share prices of the Aston Martin Lagonda and jet engine maker Rolls-Royce have already risen.
Although the US government is heralding the UK’s agreement to offer reciprocal market access on beef as a big win for US farmers, none of the government’s “red lines” on conceding to lowering food standards on imports were crossed. Even though the UK is opening market access for US beef products, the government insists it won’t have to accept meat that falls below domestic welfare or safety standards.
Heather says it is also notable what is missing from the deal – it will have come as a surprise that Britain did not budge on its digital services tax despite US pressure to do so. It is also not clear from the deal whether the UK will be given preferential treatment in future tariffs on the film industry or pharmaceuticals.
How ‘full and comprehensive’ is the deal really?
Heather says that despite all the pomp and bluster, and Trump’s claims that this is a “full and comprehensive” deal, there isn’t actually a huge amount in there.
The main point is that the UK has managed to carve out some relief for the steel and car industries and avoid any major concessions that would cause a serious political headache, and the US has been allowed to claim victory in its America First tariff wars.
“We can expect the government to say that they managed to achieve what successive Conservative prime ministers failed to do in striking a deal but that is a bit disingenuous because they were after a comprehensive trade agreement and this a really limited trade deal designed to mitigate the damage of the Trump tariffs,” she says.
There is a big difference between trade deals and trade agreements: trade deals are usually short-term and limited while trade agreements are broad based and long term. As Andrew Sparrow the Guardian’s live blog editor wrote: “A big India-style agreement, this is not.”
Is this a genuine win for the UK?
Coming hot on the heels of the trade deal with India announced last week and ahead of a EU/UK Summit on the 19 May, the government says the deal with the US shows it is delivering and building momentum towards its promises on economic growth.
However, for Heather, the fact that we were the first across the line is less to do with our crack negotiating skills and more to do with the fact that Trump’s main complaint over trading terms lies elsewhere.
“In Trump’s mind, if you have a trade deficit you’re being cheated in some way and so he’s fixated on the EU and China which he feels are somehow pulling a fast one on the US,” she says.
“We don’t have this deficit, largely because we’ve hollowed out our domestic manufacturing industry, so ours would be one of the simpler trade deals to agree because there are likely to have been less sticking points.”
Heather says that although the UK actually didn’t give away that much, it is still in a worse position than it was just a few months ago in terms of trading arrangements with one of our most important partners.
It is, she says, less a blueprint for increasing prosperous trading arrangements and more an attempt to roll back some of the damage done by Trump’s America First economic policies.
“I think you can frame this not so much as a big win but as a big relief, especially for those sectors who were really on the ropes such as car manufacturing,” says Heather.
“It’s significant that Starmer held his press conference surrounded by car workers because he wants to say, we did this to protect jobs and protect our industry. It’s also a win that they haven’t given away anything that will compromise their dealings with the EU. But I think in general this deal is like the school bully giving some but not all of your lunch money back.”
What is in it for the US?
It’s also worth noting that despite Trump and his entourage bragging that today proved him to be single-handedly reworking the dynamics of global trade, the US needed this deal to happen almost as much as the UK.
Trump’s pitch to the American public is that he’s a master deal-maker and reliable custodian of the US economy and his polling – both personally and in terms of his economic policies – is tanking.
The White House needed an off-ramp from Trump’s global tariff fallout and this deal could provide just that; it will signal to other trading partners that the administration is stepping away from a war footing towards a desire to forge more normal bilateral trade relationships.
“The markets will respond positively to this deal because what Trump has shown is that he’s willing to negotiate if you give him something and accept the 10% tariff,” says Heather. “It’s a roadmap for other countries to follow.”
What is the potential impact of the deal on the UK economy?
Heather says that the deal itself is unlikely to solve the Starmer government’s economic woes. Trump’s entire tariff policy, including a projected slowdown in global economic growth, is likely to shave just 0.3% off GDP in three years’ time.
“It’s very important to have this piece of good news to take to the public and now that the Bank of England has cut interest rates they’re going to have positive headlines about people’s mortgages going down and this deal being done and that will help boost consumer and business confidence,” says Heather. “But in terms of the broader economic impact this deal is really quite small.”
Heather says that deal or no deal, Reeves is facing the damaging prospect of breaking her own fiscal promises and having to decide whether to raise taxes or cut public spending to try to make up the shortfall. With last week’s dire local election results for her government, some of her economic decisions are also proving hugely unpopular.
In other words, the chancellor has bigger problems than this limited trade deal can fix.
