US President Donald Trump and UK Prime Minister Keir Starmer announced on May 8 a ‘historic trade deal’ between the US and the UK. But it related mainly to the general terms (GT) for an eventual Economic Prosperity Deal (EPD). GT is only an interim understanding in some areas that need to be developed and formalised as EPD.

Trump must have felt it urgent to announce the first such deal, even in an interim stage. He is keen to show that his high stakes strategy, of upping tariffs and then leveraging them for trade and tariff bargains with third countries, was working.

Starmer had his own compulsions. The hefty 25 per cent US tariffs on steel and autos (a 2.5 per cent applied tariff to be added on autos) were hurting the already problem ridden British steel and auto sectors.

There are some takeaways for India even from this limited GT outcome. US Commerce Secretary Howard Lutnick has also termed it a blue-print for upcoming deals.

UK’s auto, steel focus

Expectedly, UK’s key demand was duty elimination on autos and steel. Per the outcome, UK can now annually export 100,000 autos at 10 per cent duty, around the same level as in preceding years. An accompanying arrangement for auto parts will be made. UK had to contend with 10 per cent in-quota duty since it also charges the same on foreign cars.

It can also export steel and aluminium at zero duty up to some allocated quantities, still to be finalised. Per the BT, the quota is dependent on the ‘security of supply chains’ and ‘the nature of ownership of the relevant production facilities’. These are new elements which US is introducing for ensuring economic security.

Co-incidentally, UK Parliament had to pass emergency legislation last month for taking control of British Steel after the Chinese owners, the Jingye Group, did not accept UK government’s bail-out plan for keeping the blast furnaces working. Perhaps this is the reason why the fact sheet released with the BT announcement mentions that the US recognises the economic security measures taken by the UK.

GT further mentions UK will get preferential treatment in any further tariffs imposed under Section 232 of US Trade Act (refers to ‘national security’ considerations) on products beyond those earlier imposed on steel, aluminium and autos. Such investigations are underway in the US on copper, timber, pharmaceuticals and semiconductors.

UK has a particular interest in pharmaceuticals (its exports to US exceeded $7 billion in 2024) in which GT goes a little further stating that if UK supply chains fulfilled the new economic security criteria, US and UK, will negotiate a significantly preferential outcome on pharmaceuticals and pharmaceutical ingredients.

The GT also makes clear that rules of origin used in the EPD will maximise bilateral inputs and prevent third parties from circumventing.

On all other products, US as part of the EPD negotiations agrees to reduce its current applied rates but has not agreed on Britain’s request for lifting the 10 per cent baseline tariff. The only relaxation could be preferential access to high quality UK aerospace components sourced by American aerospace manufacturers like Rolls Royce engines.

On two aspects however UK prevailed. One, Britain has not been forced to reduce its 2 per cent digital services tax on US tech firms or make any change to its online safety laws. Second, there will be no weakening of UK food standards on imports. UK has said hormone-reared beef or chlorinated chicken from the US would not enter the country under this deal.

As for gains for the US there are several. One was the substantial reduction of duty on US goods by the UK from an average of 5.1 per cent to 1.8 per cent. US exporters will also be able to export at zero duty 1.4 billion litres of ethanol annually and 13,000 tonnes of beef (as against a quota of 1000 tonnes with 20 per cent duty now) amounting together to $950 million annually.

Trump expects a $5 billion opportunity for new exports. UK has also indicated purchases of $10 billion worth of Boeing planes even as the deals will be between private parties.

India factor

Following are a few key takeaways considering that Indian negotiators will be in the US later this month for sectoral and other negotiations on India-US BTA:

(i) The EPD when finalised may see UK’s tariffs substantially slashed. US maintaining baseline tariffs on most products will mean its final tariffs will be far more than they were early this year. Indian negotiators must argue this cannot be a fair template on tariffs with a country like India. Securing ‘more than full reciprocity’ for the US would be totally iniquitous.

(ii) A key expectation of India from the BTA, also reflected in the joint statement of February 13, is India gets to enhance its exports of labour intensive products. These include textiles and clothing, footwear and jewellery. US simply reducing/eliminating its applied tariffs but maintaining some level of reciprocal tariffs will neutralise all benefits from the BTA.

(iii) US Commerce Secretary Lutnick has referred to UK wanting to sell Rolls Royce engines in return for agreeing to buy $10 billion airplanes as a model of reciprocity for other countries. Fortunately there are several potential ones in the case of India covering various sectors (including that of Starlink which has already received an LOI) which need consolidation and effective bargaining. But this cannot be insisted upon for every sector.

(iv) Economic security of supply chains is emerging a key consideration particularly for Section 232 products. India should be able to demonstrate this in steel, aluminium and auto sectors. It would be urgent to find ways to extend this to also pharmaceuticals. Many Indian companies also have manufacturing units in the US. Being a country still developing its manufacturing, quotas in autos or steel for India should not be decided on past trade levels but future potential.

(v) UK has demonstrated grit in sticking to its regulatory red lines. We should also do so whether it relates to unacceptable TRIPS plus provisions, our food security needs or standards, digital safety and privacy requirements or taxation related matters.

(vi) Admittedly, rules of origin need to be crafted in a manner to keep out circumventing. But special needs of gems and jewellery, petroleum refining or fisheries sectors need tailored rule setting as in some of India’s more recent FTAs.

The writer, a former diplomat, is currently Senior Fellow, Delhi Policy Group

Published on May 14, 2025