On May 8, 2025, the United States and the United Kingdom announced a limited bilateral trade agreement, marking a significant step in strengthening economic ties between these two global powers. Described as a “general terms” agreement, it addresses key trade barriers while maintaining certain tariffs, reflecting a pragmatic approach to balancing economic benefits with strategic priorities. This article explores the major provisions of the agreement, its potential impact on bilateral trade, and the trade dynamics between the U.S. and the UK over the past three years, including key products exchanged.

Major Provisions of the U.S.-UK Trade Agreement

The agreement, announced by U.S. President Donald Trump and UK Prime Minister Keir Starmer, is not a comprehensive free trade agreement but a targeted deal aimed at reducing trade barriers and fostering reciprocity. The following are the key points of the agreement, based on official statements and analyses:

Tariff Reductions on Specific Goods:

U.S. Tariffs on UK Goods: The U.S. reduced tariffs on British auto imports from 27.5% to 10% for a quota of 100,000 vehicles annually, covering nearly all UK auto exports to the U.S. in 2024. Tariffs on UK steel imports were eliminated, dropping from 25% to 0%.

UK Tariffs on U.S. Goods: The UK removed its 19% tariff on U.S. ethanol imports up to a quota of 1.4 billion liters, exceeding current U.S. export levels to the UK. This benefits U.S. ethanol producers, particularly in the beer production supply chain.

Agricultural Market Access:

Both countries agreed to reciprocal market access for beef. The UK granted U.S. beef producers access to a tariff-free quota of 13,000 metric tons, while UK farmers received a similar tariff-free quota for beef exports to the U.S. Importantly, the UK maintained its food standards, banning U.S. beef produced with growth hormones, which may limit the competitiveness of U.S. exports.

The agreement is expected to generate $5 billion annually in new export opportunities for U.S. agricultural producers, including $700 million in ethanol and $250 million in beef exports.

Non-Tariff Barrier Reductions:

The UK committed to streamlining customs processes for U.S. exporters, reducing bureaucratic delays. Procurement reforms were introduced to favor U.S. firms in UK government contracts, enhancing market access for American businesses.

High-standard commitments on intellectual property, labor, and environmental regulations were included to align trade practices and ensure fair competition.

Sector-Specific Provisions:

The agreement supports a $10 billion Boeing deal, bolstering U.S. aerospace jobs. It also aims to create a secure pharmaceutical supply chain, though details on tariff reductions for UK pharmaceuticals remain limited, potentially impacting companies like AstraZeneca and GSK.

Preferential access for U.S. industrial machinery exports was secured, further diversifying U.S. export opportunities.

Retention of Baseline Tariffs:

The U.S. maintained a 10% baseline tariff on most UK goods, reflecting President Trump’s “America First” policy to address the U.S. trade deficit. Above the 100,000-vehicle quota, UK auto exports face a 25% tariff, which could limit growth in this sector.

The agreement did not address the UK’s 2% digital services tax, a point of contention that may resurface in future negotiations.

Impact on Bilateral Trade.

The U.S.-UK trade agreement is poised to enhance bilateral trade by reducing key tariffs and non-tariff barriers, though its limited scope and retained tariffs temper expectations for transformative growth. Below are the anticipated impacts:

Increased U.S. Exports: The $5 billion in new export opportunities, particularly in agriculture, ethanol, and machinery, will boost U.S. producers. The tariff-free steel and reduced auto tariffs will make UK markets more accessible for American firms, potentially increasing U.S. goods exports by 5-7% annually, based on 2024 figures.

UK Export Growth with Constraints: The elimination of U.S. steel tariffs and reduced auto tariffs will support UK industries, particularly automotive and steel. However, the 10% baseline tariff and stringent UK food standards may limit UK export growth, especially for beef and pharmaceuticals.

Strengthened Supply Chains: The focus on aerospace and pharmaceutical supply chains will enhance resilience and cooperation, benefiting industries critical to both economies. The Boeing deal, for instance, supports thousands of U.S. jobs while ensuring UK access to advanced aerospace technology.

Trade Deficit Considerations: The U.S. goods trade surplus with the UK, which was $11.8 billion in 2024, may widen slightly due to increased U.S. agricultural and machinery exports. However, the 10% tariff on most UK goods and the quota system for autos could cap UK export growth, aligning with U.S. efforts to reduce its overall trade deficit.

Long-Term Strategic Benefits: The agreement strengthens the U.S.-UK economic alliance, positioning both nations to counter global trade challenges, such as non-market practices from countries like China. It also sets a precedent for future negotiations, with both sides acknowledging the need for “more serious work” to build on this deal.

U.S.-UK Trade Dynamics: 2022–2024

The U.S. and UK have maintained a robust trade relationship, with total goods trade growing steadily despite global challenges like Brexit and supply chain disruptions. Below is a breakdown of bilateral goods trade from 2022 to 2024, based on data from the U.S. Bureau of Economic Analysis and the United States Trade Representative:

2022:

U.S. Exports to the UK: $76.2 billion

U.S. Imports from the UK: $61.7 billion

Trade Balance: $14.5 billion surplus for the U.S.

Total Goods Trade: $137.9 billion

2023:

U.S. Exports to the UK: $74.08 billion

U.S. Imports from the UK: $65.48 billion

Trade Balance: $8.6 billion surplus for the U.S.

Total Goods Trade: $139.56 billion

2024:

U.S. Exports to the UK: $79.9 billion (up 7.6% from 2023)

U.S. Imports from the UK: $68.1 billion (up 6.0% from 2023)

Trade Balance: $11.8 billion surplus for the U.S.

Total Goods Trade: $148.0 billion

Major Products Traded (2022–2024)

The composition of U.S.-UK trade reflects the strengths of both economies, with high-value goods dominating the exchange. The following are the major products traded, based on data from the Observatory of Economic Complexity and trade reports:

U.S. Exports to the UK:

Mineral Fuels and Oils: $13.33 billion in 2023, including crude oil and petroleum products, driven by global energy demand.

Aircraft and Aerospace Products: A significant portion of U.S. exports, with Boeing aircraft and parts contributing billions annually.

Machinery and Mechanical Appliances: Including industrial equipment, valued at approximately $10 billion in 2023.

Pharmaceuticals: High-value drugs and medical supplies, though specific figures vary due to supply chain complexities.

Agricultural Products: Including ethanol, soybeans, and processed foods, with ethanol exports set to grow under the new agreement.

UK Exports to the U.S.:

Nuclear Reactors, Boilers, and Machinery: $15.13 billion in 2023, including industrial machinery and power generation equipment.

Vehicles (Automobiles): A key export, with brands like Jaguar Land Rover contributing significantly, valued at around $10 billion annually.

Pharmaceuticals: Products from companies like AstraZeneca and GSK, though tariff uncertainties may affect future growth.

Beverages (Spirits and Beer): Scotch whisky and other spirits, a consistent export valued at over $1 billion annually.

Steel and Metal Products: Significant until 2024, when U.S. tariffs were lifted, expected to boost exports further.

Challenges and Future Prospects

While the agreement marks progress, its limited scope and retained tariffs highlight challenges. The 10% U.S. tariff on most UK goods and the unresolved digital services tax issue could strain relations. Additionally, UK food standards may limit U.S. beef exports, as British consumers prefer locally sourced products from retailers like Tesco and Sainsbury’s. The agreement’s success will depend on both nations’ ability to address these issues in future negotiations.

Looking ahead, the U.S. and UK have expressed commitment to building on this deal. The “Atlantic Declaration” of June 2023, which included data protection and critical minerals agreements, suggests a broader vision for economic cooperation. A comprehensive free trade agreement, potentially dubbed the UKUSFTA, remains a long-term goal, promising deeper integration and mutual benefits.

Conclusion

The U.S.-UK trade agreement of May 2025 is a pragmatic step toward enhancing bilateral trade, with targeted tariff reductions, agricultural market access, and supply chain cooperation. While not a full-fledged free trade agreement, it is expected to boost U.S. exports by $5 billion annually and support UK industries like steel and automotive. Bilateral trade, which reached $148 billion in 2024, is poised for modest growth, driven by key sectors like aerospace, machinery, and agriculture. As both nations navigate global trade challenges, this agreement lays the groundwork for a stronger, more reciprocal economic partnership.