Trump, Starmer hail limited US-UK trade deal, but 10% duties remain

By Andrea Shalal, Alistair Bell and Andrew MacAskill

WASHINGTON/LONDON (Reuters) -U.S. President Donald Trump and British Prime Minister Keir Starmer on Thursday announced a limited bilateral trade agreement that leaves in place Trump's 10% tariffs on British exports, modestly expands agricultural access for both countries and lowers prohibitive U.S. duties on British car exports.

The preliminary deal is the first of dozens of tariff-lowering deals that Trump expects to land in coming weeks after upending the global trading system with steep new import taxes aimed at shrinking a $1.2 trillion U.S. goods trade deficit.

Trump hailed the deal in the Oval Office with Starmer patched in on a speaker phone, as U.S. Treasury Secretary Scott Bessent and top trade negotiator Jamieson Greer head to Switzerland to launch negotiations with Chinese negotiators.

He pushed back against seeing the UK deal as a template for other negotiations, saying that Britain "made a good deal" and that many other trading partners may end up with much higher final tariffs because of their large U.S. trade surpluses.

In April, Trump imposed reciprocal duties of up to 50% on goods from 57 trading partners including the European Union, pausing them days later to allow time for negotiations until July 9. He has also heaped new 25% tariffs on auto imports, ended all exemptions on steel and aluminum duties, and announced new tariff probes on pharmaceuticals, copper, lumber and semiconductors. This week he added movies to the list.

"It opens up a tremendous market for us," Trump told reporters, noting that he had not fully understood the restrictions facing American firms doing business in Britain.

"This is a really fantastic, historic day," Starmer said, noting that the announcement came nearly at the same hour 80 years ago when World War Two ended in Europe. "This is going to boost trade between and across our countries, it's going to not only protect jobs, but create jobs, opening market access."

The two leaders heralded the plan as a "breakthrough deal" that lowers average British tariffs on U.S. goods to 1.8% from 5.1% but keeps in place a 10% tariff on British goods.

A UK official told reporters that the United States and the United Kingdom have more serious work to do, and noted the deal did not include Washington's demand for restructuring of Britain's digital services tax, levied at 2% of UK revenue for online marketplaces. Washington could revisit the issue, but there was no agreed process for doing so, the official said.

"This is not a finished, classic 'bells and whistles' free trade agreement. It started off as a tactical response to President Trump's tariffs, but actually morphed into a more substantive trade deal," the official said. "And it will be built on. ... We've done the Oval Office, now we've got more serious work to do."

Trump's first trade deal fueled a rally on Wall Street, sending major U.S. indexes briefly up over 1%. The S&P 500 passenger airlines index closed up 5.4%, led by a 7.2% surge in Delta Air Lines (DAL.N) as U.S. Commerce Secretary Howard Lutnick said British-made Rolls-Royce engines would enter the U.S. duty-free.

Trump's administration has been under pressure from investors to strike deals and de-escalate its tariff war after the U.S. president's often chaotic policymaking upended global trade with friends and foe alike, threatening to stoke inflation and tip the global and U.S. economies into recession.

Lutnick told CNBC on Thursday that Washington will roll out dozens of trade deals over the next month.

Trump's biggest challenge, however, is resolving a virtual trade embargo between the U.S. and China, with tariffs of 145% and 125%, respectively on each side. Greer and Bessent will lead talks with Chinese officials in Switzerland, on Saturday and Sunday. Trump said the talks would be substantive -- more than an ice-breaker -- and predicted the tariffs would come down.

WARM RELATIONSHIP, SOME DISAPPOINTMENT

The British-American Business group expressed disappointment that the deal leaves in place Trump's 10% tariffs for many products, including cars, raising costs for UK exporters. It said it hoped that the deal would be a start of deeper U.S.-UK trade integration including the digital economy.

The deal will provide potential new export opportunities for American producers worth $5 billion a year, Lutnick said, while the higher tariffs would generate $6 billion in annual U.S. revenue.

It will reduce U.S. tariffs on British auto imports to 10% from the current 27.5%, according to a UK statement. The lower rate will apply to a quota of 100,000 British vehicles, almost the total exported to the U.S. last year.

U.S. tariffs on imports from the struggling UK steel industry will fall to zero from 25%, while British tariffs on U.S. ethanol will fall to zero from 19%.

Both sides have agreed to new reciprocal market access on beef, with UK farmers given a tariff-free quota for 13,000 metric tonnes. There will be no weakening of UK food standards on imports, despite repeated entreaties by the U.S. side.

Crucially there will be no weakening of UK food standards on U.S. beef imports, which was an election manifesto pledge for the Labour government. That means U.S. beef bred with growth hormones still won't be allowed in. U.S. Agriculture Secretary Brooke Rollins said the deal would "exponentially increase" U.S. beef exports to Britain. But much depends on whether American beef could compete with the British beef on price and find favor with British consumers.

Currently 100% of the fresh beef sold by Britain's two biggest supermarket chains Tesco and Sainsbury's is British and Irish.

Details were scant on tariffs on UK pharmaceuticals imports, which could damage AstraZeneca and GSK, although a White House fact sheet said the deal would create a secure pharma supply chain.

The U.S. agreed to give Britain preferential treatment in any further tariffs imposed under Section 232 national security investigations, which include ongoing probes of pharmaceutical and semiconductor imports. GSK and AstraZeneca declined comment.

In addition to assurances "future-proofing" Britain from additional sectoral tariffs, the UK official also welcomed Trump's assurance during the Oval Office event on finding ways to avoid his new push to tariff foreign-made movies.

Starmer's government has been seeking to build new trading relationships post-Brexit with the U.S., China and the EU without moving so far towards one bloc that it angers the others.

With the British economy struggling to grow, the tariffs had added to the pressure on his government.

Jaguar Land Rover paused its shipments to the U.S. for a month and the government was forced to seize control of British Steel to keep it operating.

Economists and one FTSE 100 chief executive said the immediate economic impact of a tariff deal was likely to be limited, but that trade agreements in general would help long-term growth. Britain struck a free trade agreement with India this week.

(Additional reporting by James Davey and Paul Sandle; writing by David Lawder and Kate Holton; Editing by Toby Chopra, Gareth Jones, Nick Zieminski and Daniel Wallis)