US-UK Trade: Small Progress, Big Extrapolation
The US-UK trade deal comes with the asterisk of the US running a Goods surplus in this case, but it is a start.
So, we won this time? Wait, the US had a surplus?
We break out the Goods trade balance history between the US and UK across the cycles as a steady surplus does not answer the question of “Will Trump relent where there is a material trade deficit, or will he insist negotiators stick to his reciprocal formula?”
The UK was not one of the nations on the “violation hit list” of the Trump commandments on trade deficits (i.e., “Thou shalt not be a nation with a deficit”) but the approach and rationale around autos was interesting to hear. The 10% tariff stays up to 100,000 vehicles then jumps to 25%.
While the deal is good news for UK-made luxury auto firms and will help shield Boeing from retaliation risks, it will be interesting to see what “anti-China clauses” find their way into the final language. The US has reportedly been pushing for such language in discussions with other trade partners.
The White House put up their Fact Sheet for review and they had a press conference with the usual celebratory rhetoric. It is a good deal for the US and removes a sword hanging over the UK’s head that Trump can now wield against the EU.
As major victories go, striking a trade deal with the UK is only slightly better than a trade deal with the Netherlands, which has a larger YTD surplus with the US than the UK based on this week’s trade data release.
A realist will say the UK needed a deal as a lone wolf outside the EU now, and the precarious state of the global and European economic cycles and political stakes made a rapid move helpful to keep the UK out of the crossfire of what could be ugly times ahead for global trade and a US-EU clash.
A reduction in uncertainty is the soft variables that are also very important, so this is good news for the UK more than the US consumer, small business, and UK based multinationals. The UK gets to sit out the coming ugly pageant. Having a gun removed from the side of your head is a net positive.
For the US, Trump needed a deal win with Japan and South Korea dragging. The UK deal was good for the ag sector with ethanol (the “corn crowd”) and beef called out as product groups that made major progress.
The above chart offers another angle on the timeline for exports to the UK from the US framed against imports from the UK to the US. Upward sloping for both lines is a good thing in a world with growing economies and increased consumption even for those with slow growth.
In terms of UK imports to the US, Pharma and Medicines is #2 right behind Autos. Those two lines will figure into an inevitable clash with the EU, but the UK avoids that risk with its Brexit side door move. Auto tariffs are at 10% for the first 100,000 vehicles and then move to 25% above that level. Someone might point out that sounds a bit like the tariff quota system that Canada uses in supply management for Dairy, except that Canada has a big step up that makes it effectively a quota system. The jump from 10% to 25% could effectively have the same impact given the price of the product.
The UK is a major supplier of defense and aerospace components. In manufacturing, turbines and power transmission, numerous high value added products get imported into the US by some brand names such as Rolls Royce.
The above chart updates the leading US exports to the UK. Exports from the US such as “Nonferrous (exc. aluminum) Smelting & Refining” can be a range of products (e.g., copper, brass, bronze, lead, zinc, silver, gold, and titanium). We will see what other color we can get on that mix can be dug out. We believe more than half of that line is exported gold.
Aerospace and energy would be easy guesses for most, and the actual data back that up. Aerospace and the various energy industry lines (crude oil, refined products, natural gas) offered some room for trading off some of those lines with the UK looking to protect pharma and auto trade. We assume there is more detail to come on energy purchase deals.
The fact sheet indicates that the UK will work out a separate deal (“alternative arrangements”) with the US on the Section 232 steel and aluminum tariffs. Steel has always been a sensitive topic with the UK given the abysmal state of steel in Wales over the years. The recent actions to save a British plant in Scunthorpe (northeast England) also made headlines.
The US also wants to see their agriculture lines grow. The relative absence of those product lines in the top export list by itself was a statement on what needed to be addressed. Then the US can flag that deal with the UK when they lash out at the EU.
See also:
Tariffs: A Painful Bessent Moment on “Buyer Pays” 5-7-25
Trade: Uphill Battle for Facts and Concepts 5-6-25
Tariffs: Amazon and Canada Add to the Drama 4-29-25
Ships, Fees, Freight & Logistics Pain: More Inflation? 4-18-25
Tariffs, Pauses, and Piling On: Helter Skelter 4-11-25
Tariffs: Some Asian Bystanders Hit in the Crossfire 4-8-25
Tariffs: Diminished Capacity…for Trade Volume that is…4-3-25