The US and the UK have announced they are opening negotiations on a potential trade pact following the visit of Sir Keir Starmer to Washington this week.
US President Donald Trump raised the prospect of “a real trade deal” that could see the UK avoid the threat of tariffs, while Starmer was more cautious, referring to “a new economic deal with advanced technology at its core”.
However, the history of recent trade negotiations between London and Washington has not been easy.
What shape might any US-UK trade deal take?
This remains an open question, but Starmer’s reference to a “new economic deal” suggests the UK envisages a pact that falls far short of a full-blown trade agreement.
This is to avoid the UK getting into sensitive areas such as access for US pharmaceutical and agricultural products that would require politically contentious concessions on accepting goods like chlorine-washed chicken, which would be unpopular with UK consumers.
Instead trade experts expect this pact to be much more narrowly focused, with possible models including the digital trade deal Trump signed with Japan in his first term.
On the UK side, a possible template is the agreement signed with India last July to increase collaboration in critical minerals, semiconductors, and emerging technologies to “reinforce existing collaborative efforts”.
Former UK trade department official Allie Renison, now at consultancy SEC Newgate, said the deal was likely to include pledges on regulatory co-operation in AI and other advanced technologies, while looking to avoid, or even cut, tariffs on industrial components critical for those businesses. Alignment on export controls to countries such as China might also be on the negotiating table, she added.
How big a boon could a deal be to the UK economy?
The EU is by far the UK’s biggest market, taking twice as large a share of its exports of goods and services than the US. But that still leaves the US as one of the biggest destinations for UK products.
The UK exported £60.4bn of goods to the US in 2023, making it the country’s single largest export partner, accounting for 15.3 per cent of all goods exports. The UK exported €186bn worth of goods to the EU over the same period.
In that context, the biggest benefit of a trade pact with Trump would be avoiding the creation of the kind of costs that the EU now faces following the US president’s threat of 25 per cent tariffs on the bloc’s goods.
The UK’s biggest exports to the US include pharmaceuticals, cars and power generators. “It matters to the UK if we can avoid being hit by US tariffs,” said Erik Britton at economic consultancy Fathom.
Dave Ramsden, a Bank of England deputy governor, on Friday said trade-related uncertainty following Trump’s return to the White House “may already be impacting on the global and UK economy via financial markets and via confidence channels”.
William Bain, head of trade policy at the British Chambers of Commerce, said that if a deal could be reached it would provide businesses with a stable basis for £1.5tn in bilateral investment between the two countries, including “co-operation on technology and innovation, ensuring continued growth in bilateral services trade”.
Britton said it would be a further benefit if the UK could remove some barriers in areas of key comparative advantage for the UK — for example its high-end science sector, which sells to corporate behemoths in the US, or digital and creative industries.
The UK exported about twice as much in services to the US as goods — £126bn in 2023, accounting for about one quarter of all UK services exports.
“The barriers for these industries are not large, which is why the US and UK work well together, but maybe there is more that can be done here via these discussions,” Britton added.
What might the US ask for?
Trade pacts are two-way negotiations and experts warn that one key risk to the UK is that the Trump administration will push for a much wider agreement, covering areas such as technology regulation and more access for US pharmaceutical companies to the NHS.
“The challenge for the UK government will be limiting the discussions to areas of mutual interest or where concessions won’t be too painful,” said Sam Lowe, trade policy lead at consultancy Flint Global.
Even if the pitfall of agricultural standards can be avoided, the Trump administration has signalled via its investigation into “reciprocal” trade measures that it takes a very broad view of what is protectionist, extending far beyond tariffs to include VAT, digital taxes, carbon border levies and even broader the regulation of the internet.
“If Trump starts asking for VAT exemptions it’s a massive problem,” added Lowe.
The White House has also specifically said that its review of protectionist policies in the EU and UK will include any measure that “incentivises US companies to develop or use products and technology in ways that undermine free speech or foster censorship”.
Vice-president JD Vance, who will be leading the negotiations, has criticised what he called “infringements on free speech” by UK regulators, raising the question of whether a UK-US deal would require London to dilute some of its existing online harms protections.
Renison at SEC Newgate said social media and online regulation was an area that was likely to “prove tricky” for London. “It wouldn’t be surprising if enforcement of UK legislation around online harms and the recent Digital Markets Act is raised in talks with the US, alongside issues it has with things it considers to be unfair trade barriers like our digital services tax.”
How will a US deal affect the EU-UK reset?
The UK is about to embark on a “reset” of relations with the EU to improve the Trade and Cooperation Agreement, signed after Brexit, including a potential deal to remove border checks on agricultural and plant products and relinking the UK and EU’s carbon markets.
Having to adopt US agricultural standards would torpedo hopes for a so-called “veterinary agreement” with the EU, while concessions to the US on digital regulation, data protection and carbon taxes also risk creating divisions with Brussels.
Analysts warned the UK could not afford to get distracted from its efforts to strip back barriers with Europe given the enormous scale of UK-EU trade.
“The barriers we have put up against the EU are far more important than any we could take down with the US,” said Paul Dales, UK economist at Capital Economics.