US-UK Trade Pact Amid EU Tariff Threats: Trump's Move and Potential Impacts
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Trump seals agreement with the British - EU responds with potential retaliatory tariffs - UK-EU face potential counter tariffs after Trump signs deal with UK
US President Donald Trump triumphantly announced a trade agreement with the United Kingdom, labeling it a "massive victory" for his trade policy at a press conference.
Despite the UK-US deal, Trump continues his pursuit of an accord with the European Union, despite potential EU retaliatory tariffs on American exports worth nearly $100 billion.
Marking the first significant post-April trade agreement with a major trading partner, the US-UK pact comes after Trump's imposition of sweeping tariffs earlier this year. Trump hinted at the prospect of multiple similar agreements to follow.
"A fantastic, historical moment"
Prime Minister Keir Starmer might rue his diplomatic strategy's vindication, having opted for non-confrontational tactics with the US. "This is an incredibly special and historic moment," Starmer stated via call during the press conference.
Trump described the agreement as "all-encompassing" while British government sources indicated that the pact fell short of a traditional free trade agreement, primarily focusing on specific sectors and setting the stage for further negotiations.
Automotive Quotas and Rolls-Royce Duty-Free Access
Presently, British exports, like those from other nations, incur US tariffs of 10% on most goods and 25% on steel, aluminum, cars, and car parts. However, under the new agreement, a quota of 100,000 cars will enjoy a reduced 10% tariff. Aircraft parts from Rolls-Royce will enter the US duty-free. This agreement will facilitate $10 billion (around €8.9 billion) worth of UK aviation imports and eliminate tariffs on British steel and aluminum.
The trade flow between the US and the UK stood at €370 billion last year. With roughly 70% of UK exports to the US being services and exempt from tariffs, only approximately 30% are goods-based.
Legal Expert: A Victory for the Brits in Tough Negotiations
Initial analysis by legal expert Holger Hestermeyer reveals that the UK secured a negotiating victory, successfully avoiding extra Trump tariffs without compromise on food standards. Although Trump's demand for the abolition of the digital service tax has lessened, it remains unclear if it has been dropped entirely.
25% Tariffs on US Imports and EU Retaliation
Trump has threatened the EU with blanket tariffs of 25% if no agreement can be reached. The current deadline for such an agreement is set for July. To date, the Trump administration has not responded to Brussels' proposal to mutually lift all tariffs on industrial goods.
Trump's goals include correcting trade imbalances, shifting production to the US, and utilizing tariff revenue to finance his tax cuts.
London's Response to US Tariffs
Starmer welcomed Trump with a barrage of charm during a White House visit in February, extending an invitation for a state visit by King Charles III.
EU's Reaction to US Tariffs
In stark contrast, Brussels has prepared counter-tariffs worth up to €100 billion on US products, including cars, sweet potatoes, and whiskey, should negotiations with Washington fail to yield a result. The proposed tariffs on US exports include Boeing aircraft, parts, machinery, chemicals, and alcoholic beverages such as whiskey, rum, and wine, if discussions with Washington do not lead to a solution.
However, the EU Commission is also considering export restrictions on goods worth €5.5 billion, which could include steel scrap and chemical products of interest to US importers. Additionally, the Commission plans to file a lawsuit against the U.S. at the World Trade Organization over the tariffs, forming a dispute settlement body to assess whether the tariffs contravene WTO rules.
Will the Deal Hinder EU-UK Relations?
The US-UK agreement serves mainly as a symbolic triumph for Starmer. Progress in the EU's relationship with the United Kingdom is expected at a summit in London on May 19 involving EU Commission President Ursula von der Leyen and EU Council President António Costa. Significant strides may be made in areas like animal health and food standards, though the US deal might complicate negotiations. However, chlorine chicken and hormone-treated beef will remain absent from British supermarkets as the agreement does not lower Britain's food standards. A British government spokesperson emphasized this point.
According to Marc Lehnfeld of Germany Trade and Invest (GTAI), nearly half of Britain's goods exports are destined for the EU, making it the country's more crucial trading partner. "Only 16 percent are headed to the US," said Lehnfeld to the German Press Agency in London.
- The potential trade agreement between the US and the European Union remains uncertain, with significant retaliatory tariffs from the EU looming over American exports worth nearly $100 billion.
- Ursula von der Leyen, the EU Commission President, has prepared counter-tariffs in response to potential US tariffs on EU products, should negotiations fail to yield a result.
- The US-UK trade agreement may complicate EU-UK relations, but the EU Commission is taking steps to maintain friendly relations, including a summit in London on May 19.
- Despite the US-UK agreement, nearly half of Britain's goods exports are destined for the EU, making it the country's more crucial trading partner.
- The UK government has stressed that the new trade agreement does not lower Britain's food standards, addressing concerns about the potential influx of chlorine chicken and hormone-treated beef into British supermarkets.
