US-UK trade deal points to 10pc tariffs as new norm

If anyone deserved a good trade deal with the US, it was Britain.

US President Donald Trump with, from left, Commerce Secretary Howard Lutnick, Vice-President JD Vance, British ambassador Peter Mandelson, US Trade Representative Jamieson Greer and US Secretary of Agriculture Brooke Rollins. Picture: AFP

If anyone deserved a good trade deal with the US, it was Britain. It actually runs a trade deficit with the US, buys a lot of manufactured US products, spends plenty on its own defence, and has a leader that US President Donald Trump likes.

And yet the agreement was, for Britain, a bad deal, not a good deal. Its exports to the US will now face a minimum tariff of 10 per cent, up from less than 2 per cent in 2023, with some exceptions, such as for steel and jet ­engines. Exports of cars above 100,000 units will face a 25 per cent tariff. Britain will ease restrictions on US beef and ethanol.

If you had been told a year ago the US would impose a 10 per cent tariff on its oldest, most stalwart ally, you would have assumed something had gone horribly wrong between the two. That both are hailing this as a good outcome – and the stockmarket seems to agree – tells you how much the landscape has shifted.

The US is now a high-tariff, protectionist country. Trade deals will be judged not by how much barriers go down, but by how much they go up. This might ultimately look like a British ­victory if other countries come out worse.

The “10 per cent baseline is here to stay – if the UK isn’t getting down to zero, it is very unlikely that anyone is”, Sarah Bianchi, an analyst at Evercore ISI who was a trade negotiator under president Joe Biden, wrote in a note to clients.

Stocks rallied not because investors see the deal as good for US growth, but because they see it as making further deals more likely. The hope is that the US and China, whose officials are set to meet in Switzerland in coming days, will soon dial back their triple-digit tariffs on each other.

“Who won?” is the wrong question. Tariffs raise costs, reduce efficiency, and leave everyone worse off. In that sense, there are no economic winners. If winning instead is defined as who gets to raise tariffs more, the US was bound to win, since Trump has always wanted higher tariffs and every negotiation would be contingent on that. Britain’s mission wasn’t to win, but to lose as little as possible. It avoided the steeper reciprocal tariffs Trump has announced, and paused, on others, such as 20 per cent on the European Union, 24 per cent on Japan, and the 145 per cent tariffs now in effect on China. Britain was likely never to face such high levies, since all those trading partners have sizeable trade surpluses with the US. It also eked out partial carve-outs to the sectoral tariffs on steel and autos and, later, pharmaceuticals.

Prime Minister Keir Starmer started with little leverage and proceeded to give much of that up by all but promising not to retaliate, giving Trump little incentive to compromise.

Britain had once dreamt of a free-trade pact with the US to offset loss of access to the EU. But once Trump took office, simply minimising any loss of access ­became the goal.

The costs will be bearable; the US takes only 16 per cent of British exports. And if other countries end up with higher tariffs, that will mitigate any loss of market share.

Starmer also had non-economic motives. He is eager to maintain US support for Ukraine in its war with Russia, and a blow up over trade could have hurt that cause.

On that front, one important aspect of the agreement was a hint that the US might take strategic interests into account in its trading relationships.

World steel prices have been depressed in great part because of China’s massive overcapacity. Referring to British efforts to avoid becoming a conduit for Chinese steel to enter the US, the White House said the agreement “creates a new trading union for steel and aluminium”.

The Biden administration tried, and failed, to persuade the EU to adopt a common approach to China on steel.