What can we learn from the US-UK trade agreement? The US’ limited bilateraltrade agreement with the UK — inked in May — could provide other nations a glimpse at how Washington might approach future trade negotiations. The non-binding agreement — which notably keeps tariffs on UK goods at 10% (down from the Liberation Day’s rate of 27.5%) — suggests that negotiators should expect continued unpredictability and trade barriers, along with some willingness for some concessions, according to a recently published report by Fitch Solutions’ research subsidiary BMI.

Washington was willing to concede on its harsher points: The agreement highlighted the Trump administration’s willingness to back down on some of its more radical positions — which supported earlier speculations that they were used as a negotiating tool, according to BMI report. For example, the US granted preferential access to UK steel and aluminum exports — voiding previous predictions that Washington would preserve the Section 232 tariffs applied on strategic goods.

REFRESHER- What did the UK get? The US agreed to give the UK preferential treatment in cases of new US tariff schemes, such as those imposed under probes conducted for national security threats — including the ongoing probes on pharma and semiconductors. British airplane parts entering the US will also be exempt from tariffs, including Rolls-Royce engines and other similar parts. Auto imports were also a key part of the agreement, with the US agreeing on an adjusted rate will be applied to the first 100k units of imported British vehicles.

A new (ab)normal: The US’ average weighted tariff has increased to its highest rate since around 1936, which is expected to primarily impact manufacturing-focused economies in Asia. As per this agreement, tariffs imposed on UK imports entering the US remain around 10 times higher than just a year ago — also nearly 11 to 15 times higher than the UK’s own tariffs on incoming American goods.

Unpredictability’s here to stay: The non-binding nature of the agreement also indicates a progressively unpredictable and unstable global trade environment. This means the agreement will not be ratified by UK or US legislatures, which opens the door for frequent renegotiations and enforceability issues.

What now? The agreement could be bad or good news depending on where you stand with the US. The UK benefited from a relative advantage due to its close security alliance and a relative lack of direct competition with the US, but for competitive trade partners now in negotiations with the US — such as Vietnam, the EU, and Japan, an agreement is forecasted to be less favorable.

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