UK-US Agreement Announced. But what has Actually been Agreed?

Yesterday afternoon (8th May), with President Trump in the White House and Prime Minister Kier Starmer phoning in, a UK-US deal was officially announced.  Hailed as a “great deal for both countries” and a “historic deal” by the President and Prime Minister respectively, however what does the U.S.-UK Economic Prosperity Deal (EPD) actually mean for businesses? 

Is it even a deal? 

What was announced yesterday in the White House could actually be described as a framework for which an official agreement will be built from.   

Within the official document, which was released by the UK Government, it states: 

“This document serves to define the general terms for the EPD [Economic Prosperity Deal] that set forth the shared desires of the United States and the United Kingdom to make bilateral trade fairer, easier, and more substantial...The United States and United Kingdom are immediately beginning negotiations of the EPD to develop and formalize the proposals made in this document”.  

It goes on to state that both countries “recognise that this document does not constitute a legally binding agreement”.  

So in short, nothing seems to yet be officially in place and overall, there is certainly a lack of detail within the released documents.   However, as mentioned in the EPD, both countries “intend to coordinate the timing of their respective tariff reductions to be as soon as practicable”, so what reductions are we going to see and what is possible in the future? 

What we do know:  

Steel and Aluminium Sector 

Firstly, and arguably one of the biggest wins for the UK, is that the tariff of 25% which is currently facing steelmaking in the UK, will be reduced to 0%. Once the finer details are released, it is likely that a quota will apply and it is currently unclear which derivatives of steel and aluminium products will benefit from the reduced tariff rate.  

“The United Kingdom will work to promptly meet U.S. requirements on the security of the supply chains of steel and aluminium products intended for export to the United States and on the nature of ownership of relevant production facilities.  Understanding the United Kingdom will meet these requirements, the United States will promptly construct a quota at most favoured nation (MFN) rates for UK steel and aluminium and certain derivative steel and aluminium products”. 

Automotive manufacturing 

Another key sector to benefit from the agreement is the automotive sector.  Under the EPD, the U.S. will reduce their tariff on UK cars from 27.5% to 10%.  This reduced tariff rate will apply to “a quota of 100,000 vehicles” annually, which is understood to be roughly the number of cars the UK currently exports to the U.S. each year.  

Pharmaceuticals 

To emphasise the vagueness of the current EPD, there is the possibility for pharmaceutical companies to benefit in the future; however, to what extent is yet unknown.   

A lot will depend on the current investigation (known as a Section 232 investigation) into pharmaceuticals and pharmaceutical ingredients and the outcome (which is most likely to result in additional tariffs for relevant goods). The UK and the U.S. have agreed to “promptly negotiate significant preferential treatment outcomes on pharmaceuticals and pharmaceutical ingredients” if/when the U.S. takes action on the sector.  

Beef 

Both parties have the opportunity to benefit from increased exports of beef to the others market.   

For U.S. exports to the UK, the current rate of duty will be reduced from 20% to 0% and the tariff quota increased from 1,000 metric tons to 13,000.  In return, the UK exporters can equally benefit from an increased quota of 13,000 metric tonnes. 

Ethanol 

U.S. businesses can export up to 1.4 billion litres of ethanol duty-free.  

The baseline 10% tariff remains but potential leeway on future S.232 investigations 

For all other sectors and products, the “reciprocal tariff rate of 10%, as originally announced on Liberation Day, is in effect”.  

Within the U.S., investigations continue on not only the pharmaceutical sector but also sectors such as copper, timber, semi-conductors and trucks.  As such, it is likely that we may see future global tariffs introduced which specifically target these sectors.  However, the EPD does open the door to the UK avoiding such further S.232 tariffs, as long as (and it may be a big “if”) the US are satisfied with the security of UK supply chains.  

“The United States and the United Kingdom intend to adopt a structured, negotiated approach to other sectors that may be subject to Section 232 investigations or other tariff measures with a view to a significantly preferential outcome.” 

Talks continue on Technology Agreement 

Separate from the EPD, both countries agreed to continue their discussions towards agreeing a “transformative technology partnership”.  

As such, this deal revolves around goods and the more urgent issue of tariffs. While talks on improving our services sector relationship continues, it is probably no surprise that this has currently taken a back-seat while negotiators pull together the EPD.  

Food safety provision remain untouched 

One of the largest concerns prior to the EPD being announced was the risk that UK food standards could be lowered to accommodate U.S. chlorinated chicken and hormone-treated beef.   

However, within the EPD it states that though both countries will work to enhance agricultural market access, both countries confirmed that “imported food and agricultural goods must comply with the importing country’s sanitary and phytosanitary (SPS) standards”. 

Conclusion: 

Yesterday’s announcement has been hailed by many outside the political circles, particularly those within the steel and automotive industries.  Being able to improve the situation for these two large industries in particular (and hopefully the pharmaceuticals industry as well) is certainly a win.  It is also a positive that the UK has been the first country to agree such a deal with the Trump administration.   

However, the extent of the success of this deal will depend on two things: 

1. The final detail and agreement 

2. What deal other countries manage to agree with the United States 

   
   

We wait to see on the final details, and when businesses will actually be able to benefit from the improved tariff position.  Until that point, we will only be able to judge the level of success of the EPD by keeping an eye on President Trump and his talks with the rest of the world.