Britain's departure from the EU investigates the success of its trade alliance with the United States.
In a significant move, Prime Minister Sir Keir Starmer finalised the UK's deal with the US in early May, making Britain the first nation to secure an agreement with the White House following the imposition of sweeping tariffs on trading partners. Similarly, the US and EU have inked a deal to curb President Donald Trump's trade offensive, with the UK receiving modest relief for automakers and steel tariffs set at 25%.
The US-EU deal is expected to see the EU commit to further investment in the US by nearly $600bn and $750bn into US energy. However, the agreement will only exempt steel and aluminium from the 15% tariff baseline, with 50% tariffs already applying to them.
The deal, while reducing near-term policy uncertainty and averting more severe tariff scenarios, is seen as unbalanced and more defensive by the EU. Analysts estimate that the 15% tariffs could reduce euro area GDP growth by around 0.5%, with some predicting a more modest 0.1% reduction.
AllianzGI, MUFG Research, and The Kiel Institute have all provided estimates, with AllianzGI suggesting a 0.5% reduction, MUFG Research a 0.2% reduction, and The Kiel Institute a 0.1% reduction in EU GDP. The deal removes some uncertainty that had constrained market and policy outlooks; however, it might restrain potential equity market gains due to its defensive nature.
Uncertainties surrounding the agreement include the exact details and exemptions of the deal, the weaker euro reflecting a perception that the EU secured a less favourable deal, uncertainty on inflation dynamics and central bank reactions, and the political and economic consequences that may still evolve if tensions rise or trade terms shift again.
Ursula von der Leyen, the European Commission's President, hailed the deal as bringing stability and predictability. However, she expressed hopes for negotiation to replace the 50% steel rate on the EU with a quota system. The UK-EU agreement, announced in May by Starmer and von der Leyen, positions Britain "back on the world stage".
Despite the uncertainties, the deal has had positive impacts. London-listed Babcock recorded an 11% jump in revenue to £4.8bn due to a new era for defense. The original US-imposed tariffs of 30% on the EU will be slashed to 15%.
However, the deal has also received opposition. The UK-EU agreement allows EU trawlers access to British waters for a further 12 years, a point of contention for many. Moreover, uncertainty persists about the deal's future, as a senior White House official stated that Trump retains the right to hike the levies in the future.
[1] AllianzGI, MUFG Research, and The Kiel Institute reports [2] DW report on the deal's impact [3] Reuters report on the deal's details and uncertainties [4] Financial Times report on the deal's implications and potential consequences
- The current US-EU deal, despite its defensive nature, has been estimated by AllianzGI, MUFG Research, and The Kiel Institute to reduce the EU's GDP growth by around 0.5%, according to reports.
- As the UK-US trade deal is followed by a US-EU agreement, the global political and economic news landscape is seeing shifts in market dynamics and stocks, as economies grapple with the terms.
- The weather of these changing market scenarios remains uncertain, with market gains potentially restrained by defensive policies and ongoing negotiations, such as the one aimed at replacing the 50% steel rate on the EU with a quota system, as underscored by key reports.
