The US-UK Economic Prosperity Deal

Eighty years to the day after Germany’s surrender in World War II, two of the victorious allies in that conflict unveiled a new economic partnership, the US-UK Economic Prosperity Deal (EPD). It is the first bilateral agreement of its kind concluded by the Trump administration since its new tariff policy was introduced in early April.

Leaders have described the EPD as a “trade deal”, but it functions more as a framework for future action. It includes tariff concessions on selected goods, grants greater access to the British market for certain American agricultural products, and outlines areas for future negotiation, including in digital regulation, export controls, and, potentially, investment screening. A separate technology-focused agreement is also planned for both countries to find ways to collaborate on biotech, life sciences, quantum computing, nuclear fusion, aerospace, and space technologies.

In substance, the EPD freezes tariffs at 10% for most goods while buying time for technical-level discussions and laying the groundwork for deeper alignment. For the United Kingdom, 30% of whose exports go to its largest export market, the United States, the deal is an important diplomatic win. It is for the United States, too, whose ninth-largest trading partner is the United Kingdom. In 2024, the United States imported $68.1 billion in goods from Britain and exported $79.9 billion to the country.

For countries eyeing negotiations with Washington, the EPD underscores that US trade talks are increasingly shaped by national and economic security considerations, not just trade balances. The agreement links future tariff relief to shared approaches on US strategic issues such as digital policy and alignment on export controls, including to China.

As Peter Mandelson, British ambassador in Washington, put it, the EPD is the "end of the beginning". Much will now depend on the outcomes of technical-level discussions, which could have direct repercussions on London’s reset talks with the EU. 

Is this a Free Trade Agreement?

No, it is not.

The EPD is an economic partnership, not a free trade agreement (FTA). Unlike most FTAs, it does not cover most areas of trade and is not a legally binding agreement. As such, it does not need to be approved and enforced by Congress and the British parliament.

The deal instead includes immediate changes to selective tariffs, and the document released indicates that negotiations on other aspects will begin shortly. The US secretary of agriculture visited the United Kingdom May 12-15 to begin negotiations.

Crucially, both countries have committed to continuing talks to address market access and non-trade barriers (such as regulation, procurement, and bureaucratic hurdles). They have also begun talks on a separate technology deal. This mirrors talks Washington has begun with other global trading partners, which have included the following six areas:

• tariffs
• non-tariff barriers
• digital issues
• economic security tools such as export controls, investment screening, sanctions, and other similar instruments
• additional issues including rules of origin, intellectual property, and labor regulations
• commercial deals involving American products or investments in the United States

The EPD also builds on extensive work previously completed between the two countries. The United States and the United Kingdom launched trade talks in October 2018 and concluded several consultations with interested parties and both countries’ legislatures, but those talks stalled during the Biden administration. The EPD restarts that process, but with a higher US tariff level to rectify perceived imbalances from past negotiations.

How big is this deal for both countries?

While far from a fully comprehensive trade agreement, the EPD sends a strong political signal and is designed to restore business confidence on both sides of the Atlantic.

For US President Donald Trump, the deal reinforces his claim that his tariff policy is delivering results and demonstrates that countries willing to negotiate with Washington can secure better terms as long as they align closely with American interests. The EPD also reflects the White House’s broader trade strategy, which is using tariffs as leverage on trade and pushing policy shifts in areas such as digital policy and export controls. Countries entering negotiations with the United States should expect such demands. The White House has estimated that an improved deal would open $5 billion in export opportunities for American businesses and generate $6 billion in duties on UK imports.

For British Prime Minister Keir Starmer, the deal allows him to achieve several goals. He can position himself as successfully defending key UK sectors, such as the automotive, steel, and aluminum industries, that American tariffs have severely impacted. The United States is the second-largest market (after the EU) for UK steel exports, and the largest for the British automotive sector, accounting for 28% of mostly luxury vehicle exports. The EPD also enables Starmer to claim that Brexit is delivering practical benefits: Outside the EU, the United Kingdom has the flexibility to strike bilateral deals faster and, in so doing, the government quells fears that the country seeks to rejoin the bloc.

Timing is also playing a role. The announcement follows a strong showing by Nigel Farage’s Reform UK party in recent local elections. Trump, who maintains a close relationship with Farage, once suggested that he become ambassador to Washington. Starmer’s government was eager to show that it can handle strategic relationships without Farage’s involvement. Signing the deal on May 8, Victory Day, adds a layer of diplomatic gravitas. 

What does the EPD mean for US-UK trade?

The EPD accomplishes three things: It reduces tariffs on selected goods, improves market access for other goods, and outlines future talks. A single comprehensive package is not required upfront. Negotiations on specific items can be sequenced or concurrent.

In the first 100 days of Trump’s second term, the United States imposed three types of tariffs impacting its trading partners:

• a flat 10% tariff on all imports under the 1977 International Emergency Economic Powers Act (IEEPA)
• tariffs levied for national security reasons on strategic industries (including steel, aluminum, autos and auto parts, pharmaceuticals, and potentially others under investigation) under Section 232 of the 1962 Trade Expansion Act
• “reciprocal tariffs” on 57 trading partners to rebalance their trade deficits with the United States, again using IEEPA. Trump paused these tariffs on April 11 for 90 days to allow for negotiations.

The EPD maintains the 10% tariff baseline on all goods. It also announces planned changes in three specific sectors: 

• Automobiles: The United States will allow the United Kingdom to ship 100,000 cars per year at a 10% duty rate, with any additional autos subject to a 27.5% duty. This is important for the United Kingdom because it exported 102,000 cars to the United States, its largest category of exports to the country, in 2024. These exports were valued at approximately £9 billion.
• Steel/iron/aluminum: The United Kingdom will work to meet US security-of-supply-chain standards on these products, at which point the 25% Section 232 tariffs will be waived up to a quota that has yet to be negotiated. The British government recently took over the sole remaining steel company in the country, British Steel, after its Chinese owner, Jingye Group, planned to close the company’s last remaining blast furnace. In 2024, the United Kingdom exported £700 million in steel to the United States, mostly specialized, high-quality steel for the automotive, aerospace, and construction sectors.
• Agriculture: The United Kingdom will remove its 20% tariff on US beef and raise an import quota on the product from 1,000 metric tons to 13,000 metric tons. The United States will also raise its quota on British beef to 13,000 metric tons. London will also allow 1.4 billion liters of ethanol (with a commercial value of $700 million) to enter the United Kingdom at a 0% duty rate.

Both countries have also committed to negotiating preferential outcomes for pharmaceuticals and other products that may be subject to Section 232 investigations. As of May 11, Washington is pursuing such investigations on lumber and timber, copper, trucks and truck parts, critical minerals, pharmaceuticals, semiconductors, airplanes, and aerospace parts.

Trump has said that Rolls-Royce engines will get duty free access to the United States, although this is not included in the EPD. IAG, the owner of British Airways, announced on May 9 that it will buy 32 Boeing aircraft worth $13 billion. 

On a macro level, Washington said that it will impose an average tariff rate of 10% on all British goods, up from an average of 3.4% prior to the Trump administration’s April 2 announcements. The UK average tariff on American goods will decline from 5.1% to 1.8%. 

A better historical comparison to evaluate the EPD’s impact involves examining weighted average tariffs. This is calculated by dividing total duties collected by total imports and reflects the relative importance of different tariff rates to a country’s imports. Prior to 2025, Britain's weighted average tariff rate was 1.02%, and the United States’ was approximately 2%.

When will the new tariffs take effect?

The EPD indicates that the United States and the United Kingdom will coordinate the timing of these reductions and implement changes as soon as practicable while taking domestic processes into consideration. The deal allows for negotiations on specific items to proceed in stages rather than all together.

What about services, such as financial services or professional services?

The EPD focuses on goods, but it confirms that the United States and the United Kingdom will negotiate an ambitious set of digital trade provisions that will include services, specifically financial services. Both countries have also committed to an agreement to simplify regulations on services and processes for companies to do business. Impediments for non-local services providers include registration requirements and acquiring licenses. The EPD will cover trade facilitation (“customs”) enhancements such as paperless trade, pre-arrival processing, and digitalized procedures. The US–UK Financial Regulatory Working Group (FRWG) is among the forums already addressing issues to ease the conduct of business. The FRWG meets biannually to discuss issues involving the financial sector, prudential regulation, and emerging financial technologies. 

The UK Digital Services Tax remains unchanged as part of the EPD. Washington expressed disappointment that London was unwilling to agree to fully address the “discriminatory” levy.

Services comprise approximately 80% of the US and UK economies. Total bilateral trade in services, worth over $263 billion in 2024, dwarfed trade in goods, which was worth $148 billion. Bilateral investment reached $2 trillion in 2024, and over 2.5 million jobs are dependent on bilateral trade.

What about non-tariff barriers for agriculture or manufactured goods?

Agriculture and food safety standards have been an obstacle in past agreements, as the United Kingdom has claimed that certain food safety standards around US meats, particularly the hormones used in beef and chlorine rinses used on poultry, do not meet British standards. The United Kingdom has red lines around such agricultural processes, and American agricultural exports have struggled to penetrate the British market as a result. 

Both countries have agreed to work constructively to enhance agricultural market access. As US Agriculture Secretary Brooke Rollins said, "This is an agreement in concept. There are a lot of details to be worked out." Her recent UK visit signaled that agriculture would be an area of early work on implementing the deal. Importantly, the EPD recognizes that imported agricultural products must conform with the importing country’s sanitary and phytosanitary standards. 

Both countries have also agreed to work more on standards and conformity assessments for manufactured products and to streamline trade facilitation (“customs”) procedures. Greater regulatory compatibility based on bilateral recognition of product standards is an invisible impediment to trade, particularly for smaller companies. With the United Kingdom outside the EU, there is more opportunity for cooperation with Washington on this important technical topic. The EU has strongly resisted holding talks on the issue with the United States. However, progress between the United States and the United Kingdom in this field could impact the latter’s talks with Brussels.

Finally, the United States and the United Kingdom have agreed to close loopholes in the British government’s procurement markets and to prevent unfair competition from countries that are not parties to the Government Procurement Agreement. 

Can third-country businesses ship their goods to the United States via the United Kingdom to avoid tariffs?

No. Both countries indicated that they will use the existing rules of origin to maximize bilateral trade and prevent non-participants from using a bilateral arrangement to circumvent tariffs. 

Rules of origin are used to determine the national source of a product. They are essential for applying tariffs, trade preferences, quotas, and labeling requirements.

There are two main types of rules of origin. Preferential rules allow products to benefit from reduced tariffs (the baseline 10% in this case) or zero tariffs under specific trade agreements. Non-preferential rules are used to assess anti-dumping measures and trade statistics. A product counts as originating in a country if it is wholly obtained or substantially transformed there. To claim preferential tariffs, exporters must provide a certificate or statement of origin. The rules of origin from the 2022 US-UK steel and aluminum agreement, for example, state that British steel must be melted and poured in the United Kingdom. If the steel is processed in the United Kingdom but originates from a non-eligible country (e.g., China), it does not meet the origin criteria and is subject to a full tariff.

The underlying issue with this “bilateralization” of trade rules is that it gives Washington the opportunity to apply different or overly strict rules of origin requirements, which could disrupt global supply chains. If the rules are too rigid, some companies might reduce their exports to the United States or face higher costs to comply.

How does this impact the United Kingdom’s deals with others, such as the EU?

US-UK trade negotiations are separate from other trade talks London is pursuing. Just two days before the announcement of its deal with the United States, the United Kingdom also struck a comprehensive FTA with India. That deal lowered tariffs on 90% of UK products.

However, Britain’s agreements with the United States could impact London’s hopes of improving its trading arrangements with Brussels.

British access to the EU market is currently framed by the EU-UK Trade and Cooperation Agreement, which took effect in 2020. The pact makes clear that UK goods can access the EU market tariff- and quota-free if they meet the bloc’s high sanitary and phytosanitary standards and closely aligned rules in other areas, such as financial regulations. On Monday, May 19, the United Kingdom and the EU announced a new sanitary and phytosanitary standards agreement that will significantly reduce the paperwork required for goods exporters and border checks on goods.

Any change by the United Kingdom to its standards and rules, especially a lowering of them, to satisfy UK-US talks could impact its reset talks with the EU and the new sanitary and phytosanitary standards deal. The EU will also be watchful that any increase in American goods to the United Kingdom does not inadvertently bring those goods onto the EU market, especially if border checks are reduced. This applies to goods crossing the Great Britain-EU border and those crossing from Great Britain into Northern Ireland (which is under a special regime to avoid the return of a hard border and increased political tension between it and the Republic of Ireland).

The EU will also want to prevent Washington from attempting to use a US-UK deal as a template to put pressure on talks with Brussels.