US-UK Economic Prosperity Deal: what’s included?

This article was first published on May 8th, 2025; updated on May 19th 2025.

Equity markets on both sides of the UK-US "economic prosperity deal" (EPD) announced on 8 May flickered briefly into positive territory before falling back to their prior levels. As UK Prime Minister Starmer said at the time, the deal protects "thousands of British jobs in key sectors including car manufacturing and steel." Over in the USA, the White House published an article describing how President Trump had "delivered ... a breakthrough trade deal that expands market access, curbs non-tariff barriers and levels the playing field for American exporters".

Both leaders said, in terms, that this agreement would be built upon to deliver a fully-fledged Free Trade Agreement (FTA) at some point in the future. It is perhaps in that, the direction of travel, that markets reflected - however briefly - their greatest hope: that the US-UK EPD may become a template for other countries.

In general terms the EPD is a statement of intent: both parties “are immediately beginning negotiations ... to develop and formalise the proposals” made in the EPD. It speaks of the intention, following a “reasonable period of negotiation” for both parties to reduce their applied tariffs “on a preferential basis on a range of originating goods” in return for improved market access (at least compared to the full tariff regime) in specific sectors (see below for more detail on the particulars of the US-UK deal).

If the shape of this deal were to be reflected in all of the forthcoming agreements - especially that with China for which negotiators met recently in Switzerland - it would represent a material de-escalation (but not a return to the status quo ante) from the more extreme tariff scenarios and their associated worst-case economic impacts. Hence the brief flurry of hope seen in equity markets when it was announced. It would be surprising, however, if all countries were to end up with a deal on these terms.

The US-UK deal in more detail

The EPD with the USA was the second deal announced by the UK in that week: two days earlier it announced the "UK-India Free Trade Deal" along with a technical note providing a fully-worked modelling of its "preliminary economic impacts". The level of detail in both is material, as befits a fully-fledged FTA. The current agreement between the UK and USA is very much less extensive.  It remains to be seen whether the UK will be able to achieve an equivalent FTA with the USA [AH1] .

But the detail of the UK-US agreement is already important for those working in the sectors directly addressed by it.

Key points for the UK representing the intentions agreed for current negotiations. The EPD seeks to:

• Reduce to zero the 25% tariff on exports to the USA of steel and aluminium and so avoids further economic pressure and job losses on that sector (at least insofar as they relate to tariffs on exports to the USA)

• Reduce the tariff to 10% for the first 100,000 cars exported to the USA (ie almost all cars on past form)

• Establish “preferential treatment outcomes” on pharmaceuticals (and ingredients) “contingent on the findings of the U.S. Section 232 investigation into the sector.

And

• Is silent on the Digital Services Tax and online safety

• Allows Rolls Royce engines and plane parts to be exported tariff-free

• Is silent on chlorinated chicken but does not require concessions on hormone treated beef

• Nonetheless means the UK faces a higher average level of tariff than before the onset of the US tariff announcements

Key points for the US representing the intentions agreed for current negotiations. The EPD seeks to:

• Cut to zero the UK tariff on imported (bio)ethanol

• Expand the UK market opportunity for non-hormone-treated US beef

• Give preferential access to UK aerospace components for US manufacturers

• "Streamline" UK customs procedures for US imports

• Continue to be able to collect higher overall tariff revenues (for the External Revenue Service) from the UK than it was receiving before the 2 April  and subsequent announcements