Just recently, the United Kingdom and United States finalized a trade agreement. It caps UK car exports at 10%, a much lower rate than the 15% tariff the US has placed on cars imported from the EU. While this new arrangement holds great promise for providing UK exporters long-term market access, it raises important questions about long-term stability and market dynamics.
In 2024, the UK managed to export approximately 100,000 vehicles to the US. This amount is equal to the quota for the 10% tariff rate. Any car sales above that ceiling hit an eye-watering 25% tariff on car imports. EU companies face a more hostile climate. They suffer the consequences of extremely high tariff barriers on their car exports. In 2023, the EU exported over 758,000 vehicles to the US. That figure was almost seven times the value of all UK vehicle exports combined.
Aside from car exports, UK steel is still facing a 25% tariff when it is sold to the US. This rate of 20% for metal imports is remarkably low compared to the global 50% tariff. That tariff was imposed by former President Donald Trump in June. We understand that UK officials are already hard at work collaborating with their US counterparts. They hope to address technical obstacles that could allow certain steel imports into the US tariff-free.
Yet even with these negotiations, clarity about what exemptions, if any, will be exempted exists shrouded in mystery. Analysts suggest that the UK’s trade agreement may ultimately provide more favorable conditions for UK firms compared to the EU’s arrangement with the US.
“In principle, the UK is in a more advantageous position than other countries – so there is the potential to benefit from this.” – Michael Gasiorek
Other industry specialists caution that companies need confidence that any tariff variations won’t flip in the future. Michael Gasiorek noted, “To take advantage of any such tariff differences businesses need to feel reasonably secure that the differences will last. With the lack of any clear direction regarding US trade policy, that certainty certainly does not exist right now.
Stephen Millard, with the Bank of England, warned about the overall effects of this changing demand. He stated, “Demand for EU exports from the United States is likely to fall and, if that were to lead to a slowdown in the European Union, that would be bad for the United Kingdom as it would lead to a reduction in demand for our exports from our largest trading partner.”
UK officials emphasize that the lower baseline tariff rate could afford UK-based firms a competitive edge against their EU counterparts in the US market.
As David Henig warned, do not count on radical shifts just because tariffs are lower. He remarked, “I doubt companies in modern supply chains are going to make big, long-term relocation decisions based on marginal tariff differences.”