08.05.25 - First trade deal

…between US and UK. US President Donald Trump unveiled a trade agreement this afternoon. The deal with the UK ist the first the US with a country whose imports were subject to new reciprocal tariffs imposed by Trump in early April. Many specifics about the deal were not immediately clear. Trump said, the deal includes “billions of dollars of increased market access for American exports,” and that the UK will “reduce or eliminate numerous non-tariff barriers that unfairly discriminated against American products.” The final details will be written in the coming weeks.

Key Provisions of the Agreement:

• Tariff Reductions on UK Exports:
  The US will reduce tariffs on British car imports from 27.5% to 10% for up to 100’000 vehicles annually and any additional vehicles face 25% rates. Furthermore, tariffs on UK steel and aluminum exports to the US will be eliminated, providing relief to these sectors.

• Increased US Market Access: The UK will lower its average tariff on US goods from 5.1% to 1.8%, enhancing access for American products, including beef, ethanol, chemicals, and machinery.

According to Trump, there should be more deals in the pipeline. A US delegation is traveling to Switzerland on coming weekend and will meet officials from China. Trump made also clear that 10% US tariffs is the minimum and a low number “Some will be much higher because they have massive trade surpluses.”

Before the announcement, early in the afternoon, the Bank of England (BoE) cut interest rates by 25bps to 4.25% as widely expected.

Markets: US stock indices gained while UK index FTSE 100 closed negative. US dollar gained together with US interest rates as well as the pound and UK interest rates. Cryptos saw a strong bounce with bitcoin again above USD 100’000 price level.

My view: The US President Donald Trump calls it a first “great” deal with a country previously subject to reciprocal tariffs. However, the 10% tariffs imposed on the UK during the so-called “Liberation Day” remain largely in place, with only a few categories exempted or subject reduced rates.

It took more than a month to finalize this agreement. On first side, a short time period for such a major trade deal. However, negotiations having been ongoing for several years.
Without more specific details, it is difficult to assess the broader economic or market implications. My initial reaction during the press conference was one of skepticism: where exactly is the “greatness” of this deal, and what is supposed to change. Particularly for financial markets or the many corporates in countries still left without any trade agreement?

Perhaps there is slightly less uncertainty now, and at least we have a rough framework that offers some insight into how future deals might be structured.

That is why I don’t share the current market euphoria, as I see clear signs of economic strain unfolding in the short to medium term.

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