Keir Starmer's desperate trade deal is a boost for Trump, not Britain

9 May 2025, 14:43 | Updated: 11 May 2025, 21:02

Desperate for a win, Prime Minister Keir Starmer has rushed through a hastily-prepared half-deal with the US that offers some respite to car manufacturers and steelworkers, but little beyond that.

Tariff cuts for the auto industry will be welcomed, in particular, with the US as this country’s biggest export market – even if the tariff-free sales are capped at 100,000 vehicles a year, some way short of the 120,000 vehicles UK manufacturers sold into the US last year.

We have avoided some of the worst threats to UK food. But in general, the immediate impacts of this threadbare deal will be limited. Neither growth nor inflation will be much affected.

Whatever the government here may try to claim, Britain remains overall in a worse position than before Trump’s bombshell “Liberation Day” announcement in April. Whilst Britain has cut its overall tariffs on US exports into this country by 3.3 percentage points, the US has increased its overall tariffs by 6.6 percentage points.

As details of the deal emerge, the UK appears to have provided what US officials are calling a 'veto' over future Chinese investment into the country, an extraordinary breach of national sovereignty."

From the US point of view, the deal is a victory. Behind the swagger, President Trump was getting desperate for a deal – any deal, with anyone. His unilateral attempt to rip up the wiring of the global trading system had provoked a panic in financial markets, in businesses and for US consumers.

Trump’s 90-day “pause” on the tariffs, leaving most countries and industries subject to a 10% tariff charge but imposing an extraordinary 145% fee on Chinese imports, provided some relief but left business looking to invest facing deep uncertainty beyond the summer. His personal ratings dropping like a stone, and with big US businesses piling on the pressure for a change of course, Trump had to demonstrate some progress.

The deal with the UK was a godsend for Trump’s administration. This is dangerous for the world. A weakened Trump administration is one less able to pursue its trade war to its advantage. Initial negotiations with China are due to open with this weekend, US Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer expected to meet top Chinese officials in Geneva. An emboldened Trump administration is one more likely to try and push home its presumed advantage on tariffs. The risk to global growth and, potentially, inflation is real.

Meanwhile, Starmer, battered by the local election results and facing a growing mutiny in the ranks of Labour MPs, also needed to demonstrate a win. But as both the US and UK admit, this is only the start of negotiations: “the end of the beginning”, as UK Ambassador to Washington, Peter Mandelson, put it. Future rounds of talks will come back to the 90% or more of the UK’s trade with the US not actually covered in this deal.

This is a significant problem. The Digital Services Tax, which now brings in almost £1bn a year, was previously offered as a sacrifice by Starmer and Chancellor Rachel Reeves to appease the US Big Tech giants that pay it. It wasn’t in this week’s deal but Ambassador to Washington, Peter Mandelson, has been talking up a “future digital trade pact”.

He and Starmer visited notorious Palantir Technologies straight after their last White House visit in February. Improved access to the UK’s wildly valuable public sector databanks, like the NHS, is a major prize. Meanwhile, Trump continues to threaten tariffs on pharmaceuticals and films – two major export earners for the UK that remain dangerously exposed to the whims of this erratic administration.

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James Meadway is a Senior Director of Economics at Opportunity Green, and former adviser to former Shadow Chancellor John McDonnell MP

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