UK-US Trade Deal: A Tailwind for Automotive and Aerospace Sectors

The UK-US Trade and Technology Agreement (TTA), effective June 30, 2025, has unlocked significant opportunities for British automotive and aerospace companies by slashing tariffs and streamlining trade barriers. For investors, this deal presents a strategic entry point to capitalize on sector-specific growth, though challenges such as lingering steel tariffs and geopolitical risks must be navigated. Below is a breakdown of the opportunities and actionable investment strategies.

Automotive Sector: Tariff Relief Sparks a Turnaround

The automotive industry stands to gain the most from the deal, with tariffs on UK car exports to the U.S. reduced from 27.5% to 10%, applicable to up to 100,000 vehicles annually. This directly benefits companies like Jaguar Land Rover (JLR) and Aston Martin, which rely heavily on U.S. markets. The reduced costs could add hundreds of millions in annual savings for JLR alone, enabling reinvestment in electric vehicle (EV) development and global expansion.

JLR's shares have surged 22% since late 2024, reflecting investor confidence in its recovery. The company's Defender model, now the UK's top-selling luxury SUV, and its Range Rover Electric, with a waiting list of 61,000 units, exemplify its competitive edge. Meanwhile, the UK-India FTA further opens a $3.5 trillion market, reducing tariffs on 99% of goods.

Investment Play:
- Stocks: Consider Jaguar Land Rover (JLR) for its EV pipeline and geographic diversification.
- ETFs: The Global X Electric & Autonomous Vehicles ETF (CARZ) offers exposure to automotive innovators like JLR and U.S. partners such as Ford (F), which may benefit indirectly from increased UK exports.

Aerospace Sector: A Lift for High-Tech Innovation

The aerospace sector gains from the elimination of U.S. tariffs on UK-made aircraft engines and parts, a $10 billion boon for Rolls-Royce, the world's second-largest jet engine manufacturer. The deal also aligns with rising global defense spending, which is projected to hit 3.1% of GDP in Europe by 2029, driven by tensions in Ukraine and the Middle East.

Rolls-Royce's shares have climbed 30% in 2025, nearing a £9.60 fair value (Morningstar). Its F130 engine for U.S. Air Force jets and its role in the AUKUS submarine pact underscore its strategic importance. Meanwhile, the UK's £10 billion Boeing order (for Apache helicopters and Chinooks) supports aerospace supply chains across the Atlantic.

Investment Play:
- Stocks: Rolls-Royce (RR) remains a core holding due to its dominance in defense and commercial aviation.
- ETFs: The SPDR S&P Aerospace & Defense ETF (XAR) tracks aerospace leaders like Boeing (BA) and Lockheed Martin (LMT), which benefit from transatlantic collaboration.

Risks and Challenges

Despite the positives, hurdles persist:
1. Steel Tariffs: U.S. tariffs on UK steel remain at 25%, squeezing margins for companies reliant on imported parts.
2. Energy Costs: Over 70% of automotive CEOs cite rising energy expenses as a concern, though UK plans to cut energy costs by 25% by 2027 offer long-term relief.
3. Geopolitical Volatility: Trade disputes and sanctions could disrupt supply chains, as seen in the ongoing U.S.-EU tensions over steel.

Conclusion: Strategic Opportunities Amid Caution

The UK-US trade deal is a catalyst for sector-specific growth, particularly in automotive and aerospace. Investors should prioritize:
- High-margin innovators like JLR and Rolls-Royce, which are well-positioned to leverage tariff cuts and defense spending.
- ETFs such as CARZ and XAR for diversified exposure to industry trends.

However, monitor trade negotiations on steel and aluminum, as a resolution could amplify gains. For now, the automotive and aerospace sectors offer a compelling mix of near-term tailwinds and long-term growth, but investors should remain vigilant to macroeconomic headwinds.

CARZ has risen 8% since late 2024, outpacing broader markets, signaling investor optimism in global automotive recovery.

In summary, the UK-US trade deal is a strategic pivot point for investors to capitalize on tariff-driven efficiencies, innovation in EVs and aerospace, and geopolitical realignments—provided they stay attuned to lingering risks.