Skip to main content

U.S. Cuts Its First Trade Deal With UK – More Symbolic than Economic

Beata Caranci, SVP & Chief Economist | 416-982-8067
Vikram Rai, Senior Economist | 416-923-1692

Date Published: May 8, 2025

Share:

U.S. Cuts Its First Trade Deal With UK – More Symbolic than Economic

  • Upon learning that the U.S. had reached a "full and comprehensive" trade agreement with the UK this morning, financial markets let out a sigh of relief.
    • This marks the first deal since the large reciprocal tariffs were placed on all U.S trading partners a month ago. 
  • Global markets rose marginally, with the S&P 500 and DOW up 0.4% in morning trading.
  • Treasury yields initially fell a few basis points, until the details became known. Yields reversed course and were up 5-6 basis points at mid-day.

How good of a deal is this?

  • As noted by our choice of title, it's more symbolic than economic. 
  • First, it maintains a high negotiation bar that may make deal-cutting with larger countries and trade regions more difficult…hence the back-up in yields. 
  • Second, of all the major countries that the U.S. trades with, the UK is not the one it had the biggest bone to pick with. 
    • The U.S. has a trade surplus in both goods and services with the UK, and the goods surplus has been growing over the past decade via UK imports of oil and gas.
    • This means that the UK would not have been high on the White House's list of offenders in trade policy.
  • Third, despite the administration heralding this as a "full and comprehensive" trade agreement, it is a 12-month temporary arrangement ahead of what authorities say will be a larger agreement to be negotiated.

What's in the deal?

The agreement has a number of sector-specific carveouts that will ease the burden of tariffs on both economies, even though the 10% "reciprocal tariff" on imports from the U.K. have not been lifted as part of this deal. 

  • The biggest win for the UK is a reduction in the sector-specific auto tariffs from 25 percent to 10 percent, up to a quota of 100,000 units. 
    • This is around the figure the UK exported in 2024, leaving no additional room to grow without incurring the 25% tariff. 
  • The U.S. 25 percent tariff on steel exports will also be reduced, though details are still forthcoming.  
  • Both countries will be slashing their tariffs on beef imports, which are as high as 26% on the U.S. side and 20% on the UK side. 
  • Earlier reports suggested a break for U.S. companies from the UK's digital sales tax, but UK sources have noted this is not currently in the agreement. We wouldn't rule it out yet with negotiations still ongoing. 
  • The U.S. administration cited benefits from fast-tracking American goods through UK customs, as well as greater market access to agriculture, chemical, energy and industrial exports. Details to be provided in the coming weeks.
    • As an example of improved market access, during the press conference, it was noted engines and plane parts from Rolls-Royce Holdings PLC will enter the U.S. tariff free, while a British Airline will buy $10 billion in Boeing Planes.

What does this mean for the future of U.S. trade policy?

  • All in all, the details of this agreement are not earth-shattering.
  • If we expected this deal to set the tone for future deals, then what we have learned is that these initial announcements are going to be more fine-tuning around the edges and easing of pain points, rather than an end to the trade war. 
  • There are several reasons that this development is not a panacea: 
    • The UK is too small a trading partner for this agreement to move the needle on the U.S. economic outlook. 
    • Even with this arrangement, which is a reprieve on a country where the U.S. has a trade surplus, tariffs are maintained largely at 10%, suggests this will be the new American standard. We had already embedded this to be our baseline view in our last forecast.
    • The U.S. negotiations with China, the EU, and Canada/Mexico are far more important to the outlook and inflation trajectory. Together, these economies are responsible for over three-quarters of U.S. exports and imports. 
    • For this reason, it's critical that the meeting between U.S. and China officials in Switzerland this weekend gets off on a good start, as a sharp reduction in shipments and supply chain disruptions are already making their way through the economy.

Disclaimer

This report is provided by TD Economics. It is for informational and educational purposes only as of the date of writing, and may not be appropriate for other purposes. The views and opinions expressed may change at any time based on market or other conditions and may not come to pass. This material is not intended to be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice. The report does not provide material information about the business and affairs of TD Bank Group and the members of TD Economics are not spokespersons for TD Bank Group with respect to its business and affairs. The information contained in this report has been drawn from sources believed to be reliable, but is not guaranteed to be accurate or complete. This report contains economic analysis and views, including about future economic and financial markets performance. These are based on certain assumptions and other factors, and are subject to inherent risks and uncertainties. The actual outcome may be materially different. The Toronto-Dominion Bank and its affiliates and related entities that comprise the TD Bank Group are not liable for any errors or omissions in the information, analysis or views contained in this report, or for any loss or damage suffered.