US-UK Trade Deal: Good News, But Tariffs Still Haunt Investors

The U.S.-U.K. trade deal, finalized in May 2025, was hailed as a diplomatic win for both nations. But beneath the surface, Bank of England Governor Andrew Bailey’s cautious assessment—“good news, but tariffs still higher”—hints at lingering risks for investors. While the agreement opens new export opportunities for U.S. farmers and U.K. automakers, asymmetrical tariff structures and unresolved trade tensions could limit its long-term economic impact.

The Deal’s Terms: Winners and Losers

The agreement reduces tariffs on key sectors but retains a baseline 10% levy on most U.K. imports to the U.S., a rate that remains unchanged since the Trump administration’s “Liberation Day” tariffs in April 2025. Here’s the breakdown:

1. Automotive Sector: U.K. car exports face a 10% tariff for the first 100,000 vehicles annually—a quota nearly matching the U.K.’s 2024 export volume—but any excess is hit with a 25% tariff. This benefits Jaguar Land Rover, which exported £492 million in steel to the U.S. in 2024.

2. Steel and Ethanol: U.S. tariffs on U.K. steel and ethanol were eliminated entirely, a win for British manufacturers and U.S. farmers. The White House estimates U.S. ethanol exports to the U.K. will grow by $700 million annually.

3. Agriculture: The U.K. agreed to lift non-science-based barriers to U.S. beef and dairy, creating a $5 billion export opportunity for American farmers.

But the devil is in the details. Most U.K. goods, including textiles, electronics, and pharmaceuticals, remain subject to the 10% baseline tariff—a rate higher than pre-2024 levels for many products. As Bailey noted, “It will leave the effective tariff rate higher than it was before all of this started.”

Market Reactions: U.S. Gains, U.K. Stumbles

The deal’s immediate impact was starkly uneven:

• U.S. Markets: The S&P 500 rose 1.07%, the Dow gained 0.62%, and Nasdaq surged 1.9%, fueled by optimism in sectors like agriculture and autos.

• U.K. Markets: The FTSE 100 fell 0.32%, as investors bet the deal favored U.S. exporters. Analysts pointed to the 10% baseline tariff as a drag on British exporters.

• Currency: The U.S. dollar strengthened 0.9%, while the pound weakened—a sign of diminished confidence in U.K. trade competitiveness.

The Elephant in the Room: Inflation and the EU

Bailey’s broader concerns extend beyond the U.S. deal. He highlighted two critical risks:

1. Inflation and Trade Fragmentation: While U.K. inflation dropped to 2.6% in March 2025—enabling a rate cut to 4.25%—Bailey warned that unresolved global trade tensions could reignite price pressures. “The global environment is less predictable,” he said, citing supply chain bottlenecks and rising protectionism.

2. EU Trade Relations: The U.K. must rebuild ties with its largest trading partner, the EU, Bailey stressed. Post-Brexit goods trade with the EU has declined, and the Bank of England estimates that unresolved EU-U.K. trade barriers cost the economy £12 billion annually.

Investment Implications: Where to Look, Where to Run

The deal offers opportunities but also pitfalls for investors:

• U.S. Agriculture: Buy into companies like Archer-Daniels-Midland (ADM) or Tyson Foods (TSN), which stand to gain from tariff-free ethanol and beef exports.
• U.K. Automotive: Invest in U.K. auto suppliers like Rolls-Royce Holdings (RR.L) or manufacturers benefiting from the 100,000-vehicle tariff quota.

• Avoid U.K. Exporters: Sectors like textiles and electronics face lingering 10% tariffs, making them risky bets.

• Global Trade Dynamics: The U.S.-U.K. deal sets a template for future agreements—but the 10% baseline tariff suggests a long-term shift toward higher U.S. tariffs. Investors in global trade stocks (e.g., Maersk, UPS) should prepare for volatility.

Conclusion: A Half-Full Deal with Hidden Costs

The U.S.-U.K. trade deal is a step forward for select sectors, but its asymmetrical terms and unresolved tariffs mean it’s a mixed bag for investors. Key data points reinforce this:

• Trade Surplus: The U.S. is projected to widen its $148 billion 2024 trade surplus with the U.K., but this comes at the expense of U.K. exporters.
• Market Sentiment: While U.S. markets cheered the deal, the FTSE’s dip signals skepticism about its long-term value.
• Bailey’s Warning: The 10% baseline tariff—and the U.K.’s vulnerability to global trade shifts—underscores that the deal is a tactical win, not a transformative one.

For investors, the path forward is clear: focus on U.S. agricultural and automotive winners, but stay cautious on U.K. equities until broader trade barriers are resolved. As Bailey put it, “Much will depend on what deals other countries conclude with the United States.” Until then, tariffs remain a thorn in the side of global growth.