Total trade in goods and services between the UK and United States is estimated at £294.1 billion.
A UK–U.S. trade deal could help shield Britain from new U.S. tariffs, analysts suggest, as discussions continue following Prime Minister Sir Keir Starmer’s visit to Washington last week.
British and U.S. officials have agreed to “sit down rapidly to talk through an economic deal,” Starmer confirmed on Wednesday. He told MPs that a deal would be “far better than getting drawn into conflict in relation to tariffs.”
On Tuesday, the United States put 25 percent taxes on imports from Mexico and Canada, while doubling the 10 percent tariff he placed on China to 20 percent. U.S. President Donald Trump is also due to announce “reciprocal” tariffs to match the taxes and subsidies provided by other countries on April 2.
While it is unclear whether the UK will be included in that list, its broadly balanced trade in goods with the United States places it in a potentially more favourable position compared to other countries.
However, given the rapid pace of policy decisions coming from the White House, economists still anticipate a 10 percent U.S. tariff on UK imports. If VAT is factored in, as announced by the United States, the reciprocal taxes would effectively impose an effective 24 percent tariff on affected UK goods.
Concerns Over Trade Wars and Spending
Conservative Party leader Kemi Badenoch warned of rising concerns over U.S. tariffs, trade wars, and the affordability UK’s military support for Ukraine.
“The best way to prevent America from imposing tariffs on Britain is to secure a UK–U.S. trade deal,” she told MPs on Wednesday, calling for a “completely new approach to our economy and energy security.”
Analysis suggests that while a new UK–U.S. trade deal would prevent new tariffs, it would come at a cost.
“The UK hasn’t given anything to Trump, apart from two dinner dates with the king. But Trump may not have been so genial had Starmer not pledged earlier to raise the UK’s defence spending from 2.3 percent of GDP to 2.5 percent by 2027 and laid out his ‘ambition’ to raise it to 3.0 percent of GDP between 2029 and 2032,” Capital Economics said in a recent report.
“The cost is therefore the cuts to foreign aid spending that will fund the initial rise in defence spending and any further spending cuts, higher taxes or borrowing that will fund the future rise to 3.0 percent.”
The UK government must weigh the benefits of a trade deal and U.S. tariff relief against domestic opposition to higher taxes and borrowing, especially after the first Labour Budget introduced £40 billion in tax hikes, sparking strong business backlash.
What Will the Deal Look Like?
The new economic deal between London and Washington will have “advanced technology at its core.”
This means that rather than a comprehensive free-trade agreement—which would involve politically sensitive topics like pharmaceutical and agricultural imports—the UK and United States will pursue a targeted economic pact.
It would steer the deal away from issues such as hormone-treated beef and chlorinated chicken, which would be met with resistance from UK consumers.
Instead, the UK and United States may look to model their deal after the U.S.–Japan Digital Trade Agreement signed by Trump in his first term, which focused on data flows and cloud computing regulation, e-commerce facilitation, and cybersecurity cooperation.
Alternatively, the UK might follow a precedent set by its 2024 agreement with India, which increased collaboration in critical minerals, semiconductors, and emerging technologies to strengthen supply chains and research partnerships.
Speaking at a joint press conference following White House talks, Starmer emphasised the importance of embracing emerging technologies rather than over-regulating them.
“Look, our two nations together shaped the great technological innovations of the last century. We have a chance now to do the same for the 21st century. I mean, artificial intelligence could cure cancer. That could be a moonshot for our age, and that’s how we’ll keep delivering for our people,” he said.
It comes as Trump’s administration committed to advancing U.S. leadership in AI, with a focus on deregulation, substantial infrastructure investments, and the development of unbiased AI systems.
Strategic Partnerships
UK government officials have underlined the significance of a trade pact with the United States.
A House of Lords debate on Tuesday saw peers suggest that Britain should leverage post-Brexit regulatory flexibility to attract investment in high-tech industries.
Given the regulatory differences between the United States and the EU, they questioned whether closer alignment with the EU could slow progress towards a comprehensive U.S. trade agreement.
In response, online safety minister Maggie Jones said the UK seeks to maintain balanced trade relationships with both the United States and the EU, while prioritising national economic interests.
The British Chamber of Commerce (BCC) has stressed the benefits of a U.S. deal, adding it would “give businesses on both sides of the Atlantic a solid foundation to invest, export, and grow.”
However, the BCC added that stronger U.S. trade ties should not come at the expense of other key markets.
“There is £700 billion of US investment in the UK, and £300 billion in annual bilateral trade, with services a real success story,” the BCC said in a statement.
“But stronger trade with the US does not mean that our relationships with the EU, China and wider Asia-Pacific region must take a backseat. Indeed, the remarks by both leaders suggest UK business is right to have this ambition.”
According to Capital Economics, a trade deal with the United States could prompt the EU to “give the UK the cold shoulder” in the reset of UK–EU relations, as the bloc faces potential 25 percent tariffs from the United States.
However, the report also noted the UK’s growing role in Europe’s defence strategy.
“Equally, though, with the UK having clearly become more central to the EU’s defence plans as the chances of an end to the war in Ukraine have increased, the EU may view the UK as a closer partner and perhaps a link between the EU and the US. That could lead to a more favourable UK-EU reset in areas outside of defence and security,” the report said.