First Trade Deal Signals Hope—Will It Last?

Key takeaways

• For Britain, the trade deal takes the edge off the high tariffs on cars, steel and aluminium, but the 10% reciprocal tariff rates on other goods are still in place.
• Financial markets liked the fact that a deal was done. U.S. stocks rose initially, but have since faded.
• Much harder negotiations with other countries lie ahead for the Trump administration.

President Donald Trump’s deal season has kicked off, with the United Kingdom (UK) on May 8 becoming the first country to nail down a trade agreement with the United States (U.S.) since the start of the president’s second term.

Steel, autos and beef were on the agenda, with the rest of the world watching for any clues on how future deals may unfold.

To the disappointment of many, the reciprocal 10% tariff rate, initially outlined by President Trump on April 2, remains in place.

Moreover, Trump has indicated that this would likely be the lower bound tariff threshold, which dampens optimism for other trade talks.

This adds to the likelihood that tariff rates are likely to stay at their highest level since at least the 1940s, even if deals with other countries are made.

Still, there was some relief for the UK, with the two countries agreeing that up to 100,000 vehicles annually could be exported from the UK to the U.S., subject to a 10% tariff rate rather than the 27.5% rate previously in effect. 

For context, UK car exports to the U.S. were valued at £6.7 billion in 2024, representing 26 percent of total car exports. This made the U.S. the largest export market for Britain’s automotive industry and highlights the significance of the tariff relief.

However, while the UK announced that steel and aluminium tariffs will be cut to zero from 25%, the White House merely stated that the two countries “will negotiate an alternative arrangement”, leaving some doubt on the issue. 

This is a meaningful concession, as steel production remains an important issue for UK Prime Minister, Keir Starmer. In 2024, the UK exported £370 million worth of steel and £225 million worth of aluminium to the U.S., accounting for 9 percent of total steel exports and 7 percent of aluminium exports respectively.

From a U.S. perspective, the trade agreement broadens the access of U.S. agricultural products to the UK, potentially generating $5 billion in new export opportunities for American products, including beef and ethanol.

Financial markets liked the fact that a deal was done. U.S. stocks rose strongly at first, with the S&P 500 up about 1.5% at one point but fading later to close 0.6% higher. Meanwhile, the dollar rose 0.7% against the euro and 0.2% against the pound. However, the U.S. dollar is still down sharply since Trump's inauguration.

The deal between the U.S. and UK is not a comprehensive free trade agreement, but one that was hammered out quickly in response to the tariffs imposed by the Trump administration (including the “Liberation Day” tariffs). In simple terms, Britain exchanged the ability to export (mostly high-end) cars at 10% tariffs for easier access of American beef and ethanol. 

Much harder negotiations with other countries lie ahead for the Trump administration. Talks with China and the European Union will be the key ones to watch.

Finding common ground with the UK was always going to be easier than with other countries since the reciprocal tariff rate on Britain was at the lowest level of 10% to start with. While the announcements by the American and British governments were welcomed by markets, the devil will be in the detail and the positive economic impact is marginal. 

For Britain, the deal takes the edge off the high sectoral tariffs (27.5% and 25%) on cars, steel, and aluminium, but the 10% reciprocal tariff rates are still in place. Investors may be disappointed after the initial enthusiasm fades.