The UK government has secured two major trade agreements with leading global economies in moves that will present British businesses with a range of opportunities to grasp… and some disastrous outcomes predominantly avoided.
A week of deals began two days ago with the announcement of a truly historic free trade agreement with India, the fastest-growing economy in the G20 and a market over over a billion consumers.
The government estimates that the agreement will boost bilateral trade by £25.5 billion, remove trade barriers, and make it easier for UK and Indian businesses to send talented workers to each other’s countries.
Standard Chartered CEO and head of coverage in the UK, Saif Malik, noted that: “The UK-India Free Trade Agreement is a significant achievement. It will create new opportunities for UK and Indian businesses, enable greater access to one of the world’s largest and most dynamic markets, and drive growth and innovation across the UK-India corridor. “
First, the UK has lowered taxes on goods imported from India, including clothing and footwear, jewellery, some cards and food products.
India, in return, has cut rates on imports from the UK spanning cosmetics, scotch whiskey, luxury cars, lamb and salmon, aerospace products and electrical machinery.
For UK luxury carmakers currently caught in the crosshairs of Trump’s auto tariffs (although more on that later), this will come as particularly good news, as it will for Welsh sheep farmers, fisheries, and whiskey producers in the Highlands.
The deal isn’t in effect straight away, though, and there is some staggering of tariff reductions. For example, tariffs on whisky imported from India to the UK will be halved to 75% to begin with, and eventually reduced to 40% after 10 years. Car tariffs will see a more immediate drop, from 100% now to 10% as soon as the deal comes into effect.
Why this deal is significant for UK businesses and also the economy is that India is a thriving, fast-growing economy with a steadily growing middle class. Yet exports and imports to this thriving market are less than 2% of total output for the UK. In fact, we sell nearly 3x as much to the Netherlands as we do to India right now.
The deal is therefore a nice-to-announce now, but could be fundamental to future UK economic growth in the future. If India’s economy continues to surge, and there are some forecasts which suggest it could become the 3rd or 4th major economy in the world and could end up adding $1tn in exports by 2030.
So the question for the UK businesses right now should be, can we get in on that economic action?
And what about the agreement with the US?
Perhaps more consequential in the immediate term is the new trade agreement between the UK and the US – the first such agreement that the Trump administration has announced since upending global trade with his tariff war.
The full details of the agreement are still to emerge, but here’s what we know so far:
- 10% tariffs still broadly apply
- 0% tariffs on steel and aluminium
- The UK auto sector can send 100,000 vehicles into US at a 10% tariff, not 25%, protecting tends of thousands of UK jobs in auto manufacturing. Currently, the UK sends 101,000 vehicles a year, so the deal represses growth but protects industry in its current state.
- Rolls-Royce engines to continue being sold in US tariff-free
- UK buying £10bn US planes – to be detailed and announced later on
- A special agreement for the pharmacy sector with a ‘significantly preferential outcome’ according to the Prime Minister
- US agriculture will have more access to UK markets for things like beef with reduced taxes on ethanol too
More technical details and the full text of the agreement are to be released shortly.
The view from Go Exporting
Go Exporting CEO Mike Wilson has shared his thoughts on what this consequential week for exporting news means for UK firms:
“You wait around for half a decade (since Brexit) for a consequential trade deal, and then two come along at once.
“The free trade agreement with India is truly historic and has been years in the making. It opens up the world’s fastest-growing economy with a huge and emerging middle-class consumer base to numerous critical British industries, spanning aerospace to whiskey.
“The economic and opportunity uplift from this agreement will take some time to play out, but businesses that make moves today will be best placed to benefit from the opportunities that will arise tomorrow.
“Critical for UK firms in the here and now is the newly announced deal with the US. The government has done well to muscle its way to the front of the queue with the White House to arrange such an agreement, and it will bring some peace for key UK sectors, including critical automotive firms.
“Although 10% tariffs remain for most, there are benefits for auto manufacturers, steel and the aerospace industry. Farmers may pay the price with the opening of the UK market to US beef, however – we will know more as the full text is released.
“The devil may be in the details, so let’s wait and see, but the sentiment seems to be to move forward to the benefit of both countries.”
