The UK has become the first country to secure a trade deal with the new Trump administration, marking a significant, albeit symbolic, milestone in the reset of US-UK trade relations.
Announced on VE Day, the deal includes the removal of the 25% tariff on UK steel and aluminium exports to the US, as well as a reduction in tariffs on UK car exports—cut from 27.5% to 10% on the first 100,000 vehicles per year. In return, the UK has agreed to drop tariffs on US ethanol and open access to its beef market.
While the headlines speak of historic cooperation, market experts are urging advisers to take a more cautious view, highlighting the deal’s narrow scope and unresolved complexities that could impact clients’ portfolios across several sectors.
Auto and Aerospace Sectors See Immediate Upside
“The contents of the deal remain very limited in their totality,” commented Lindsay James, investment strategist at Quilter, who pointed out the strategic timing and symbolism of the announcement. “For the UK, this deal appears ultimately favourable for some of its largest exports—specifically cars, auto parts, and aerospace engines.”
Markets reflected this optimism, with shares in Rolls Royce and Melrose rising sharply on news of tariff relief. Rolls Royce, in particular, saw a near 4% gain before retreating, buoyed by news that its engine exports to the US would be duty-free as part of a wider $10 billion procurement deal with Boeing.
Yet James also highlighted the limitations: the reduced 10% tariff applies only to the first 100,000 UK-exported vehicles, “allowing for little to no volume growth before higher tariffs kick in.” This quota closely mirrors Jaguar Land Rover’s current US sales, offering no competitive edge over European rivals.
European Rivals May Still Hold the Upper Hand
Rella Suskin, equity analyst and autos expert at Morningstar, provided further context on the competitive landscape. “Jaguar is unable to take any market share from a ‘preferential’ tariff relative to European automakers,” she said, noting that JLR sold just over 106,000 vehicles in the US in 2024.
German auto giants like BMW and Mercedes may emerge as indirect beneficiaries. With significant US-based manufacturing operations, their SUV exports—particularly BMW’s South Carolina-made X range—will benefit from tariff adjustments on auto parts and potential export credit offsets. In contrast, fully import-reliant brands such as Porsche and Audi remain at a disadvantage under the new rules.
Agricultural Access: A Controversial Concession
Perhaps the most politically sensitive aspect of the deal lies in agriculture. The UK has agreed to grant US producers “reciprocal market access,” particularly for beef—a move that has reignited concerns over food standards and the erosion of prior red lines.
“Downing Street is keen to stress there will be no lowering of standards,” noted Quilter’s James, “but it does suggest the government was eager to strike a deal and may have compromised more than expected.”
This could have long-term implications for UK farmers, who now face stiffer competition from US imports in a challenging inflationary environment.
Financial and Political Implications
From a broader macroeconomic perspective, Tom Shave, President of Europe and Asia-Pacific at Ryan, emphasised the signal this sends: “The UK is clearly signalling that it is open for business, with two major trade agreements announced this week with two of the world’s largest economies.” He welcomed the tariff removals and noted their alignment with the Bank of England’s interest rate cut, both aimed at supporting growth.
Meanwhile, Thomas Moore, Senior Investment Director at Aberdeen, pointed to the broader implications for markets. “Investors should be reassured that the US is signalling its willingness to hammer out more trade deals. As more are signed, this sets up a positive outlook for equity markets.”
According to Peder Beck-Friis, Economist at PIMCO “It is a very narrow deal that keeps the baseline 10% tariff intact but lowers some of the sectoral tariffs on autos, steel and aluminum. We do not expect this to lead to a noticeable impact on overall UK GDP. The ongoing fiscal tightening and BoE policy remain much more important drivers of the outlook.”
Markets React Tepidly as Pound Falls
However, not all reactions were enthusiastic. Susannah Streeter, head of money and markets at Hargreaves Lansdown, highlighted a muted market response. “News of a UK trade deal hasn’t led to a big Trump bump. The FTSE struggled to lift out of an afternoon slump,” she said. While Wall Street stocks climbed, the pound fell against the dollar, a signal that markets view the deal as leaning in favour of the US.
Streeter also flagged concerns about possible adjustments to the digital services tax, which may become a bargaining chip in a future digital trade deal—potentially controversial given the strength of US tech firms and their limited UK tax contributions.
A Delicate Balancing Act for Starmer
For Prime Minister Keir Starmer, this deal represents a significant diplomatic win following a similarly timed agreement with India. Yet, it also introduces challenges—particularly as the UK tries to improve its trading relationship with the EU.
“This is a double-edged sword,” said Streeter. “While Starmer has scored some wins for UK trade, appeasing Trump may make negotiations with European allies more delicate.”
What Advisers Should Watch
For UK financial advisers, the implications are sector-specific but significant. Short-term opportunities in aerospace, automotive, and industrial exports may buoy certain stocks, but uncertainty looms over agriculture, pharmaceuticals, and digital services. With nearly 90 trade deals still to be agreed before July 8th, volatility in tariffs—and investor sentiment—is likely to persist.
The current deal may be just the opening act. As Quilter’s James aptly concluded: “This deal is an encouraging start… but it still leaves swathes of exports on higher tariffs than prior to liberation day.”
