The announcement of the economic prosperity deal between the USA and the UK has generated much political and media ballyhoo. Despite the euphoria, cooler heads in many UK manufacturing sub-sectors are discounting the comments from the two countries’ leaders and their senior advisers, and instead they are scouring the detail-lite four and a half page deal document for anything tangible on which they can now start to plan for the future with more certainty.
As the dust continues to settle, it’s becoming ever more apparent that what has been agreed so far is little more than a ‘place holder’, proclaiming the intention of working through a host of detailed issues that form part of every comprehensive trade agreement, but which have been conveniently swept under the political carpet, at least for now. The document notes that it “does not constitute a legally-binding agreement” and that both sides must now begin talks “to develop and formalise” the proposals. All past experience suggests that this will be a lengthy process.
This evolving situation needs to be seen through the prism of the state of UK manufacturing and its declining finances, as revealed by our recent report on the sector.
The impact for sectors within UK manufacturing
With the exception of steel and aluminium exports to America, which have been freed completely from all tariffs, all other manufactured products will continue to be subject to a 10% levy. For the auto industry, there is a minor twist from the imposition of a quota, so any vehicles exported in excess of 100,000 a year will be hit by the original Liberation Day tariff of 25%. There is also a tariff-free quota for beef exports.
US supply chain security requirements
One aspect, which will be critical for businesses within UK manufacturing will be how the US intention to squeeze China out of international trade will work in practice. This aspect is dressed up under the generalisation of threatened restrictions on certain products in which there are significant foreign components or elements, but the initial document is silent on the details.
This is part of a wider push to integrate the UK into what President Trump described as “a big economic security blanket” when he announced the deal. Initially, these provisions look most likely to impact the UK steel industry, but may well affect other manufacturing sectors such as automotive and specialist engineering.
Global implications for the UK
Understandably, the initial focus since the USA/UK deal was announced was on its impact on the UK economy. But getting onto first base in these bilateral negotiations makes little difference to the chaos that has been caused globally by the original Liberation Day tariff shock and then its 90 day suspension soon afterwards, as well as the particular trade battles between the USA and China.
To the extent that other economies round the world are suffering short term damage, which may yet become something more permanent, the ability of UK manufacturers to explore or expand further into other markets to mitigate the impact of the residual USA import tariffs will be restricted.
What has been the initial reaction from UK manufacturers?
Steel and aluminium
The trade body UK Steel commented that the terms of the deal highlight a number of hoops to jump through before the UK steel sector can see the benefits of this deal. It added that to fully assess the impact on the sector, it will need to fully understand the supply chain conditions that need to be met, how the quotas will be defined and when these will take effect.
Aerospace
UK aerospace executives noted there was still uncertainty about the details of the trading terms for the sector in the context of its highly integrated global supply chains, even though government officials have insisted that all UK aerospace parts would be tariff-free. The deal document makes no specific mention of aerospace.
Automotive
The Society of Motor Manufacturers and Traders said that the UK government has recognised the importance of the automotive industry to UK exports and the wider economy and has worked quickly and tirelessly with USA counterparts to strike an agreement. It hopes that it will lead to broader and deeper cooperation that reduces barriers to trade still further. Other voices in the motor industry have expressed concern about the quota limit and supply chain issues with globally sourced parts threatening compliance with USA supply chain security stipulations.
Pharmaceuticals
Industry observers say the USA/UK deal leaves many crucial matters unclear, including proposed tariff rates, rules on supply chain security and intellectual property, as well as British policy towards the sector. Another uncertainty relates to a British pledge to “endeavour to improve the overall environment for pharmaceutical companies operating in the UK”.
Food and beverages
The Food and Drink Federation reacted positively, its stance no doubt reflecting relief at the retention of the UK cherished food standards independence. It commented that the deal is very positive news for the UK economy, but noted that the 10% tariff that remains in place. It hopes that the deal will create the space and momentum for continued discussions about removing those tariffs too. It urged the government to provide greater practical guidance and support to help more food and drink businesses find new customers abroad.
What now for businesses in UK manufacturing?
Beyond the headlines, the sparse initial information and the relentless positivity of the political comments, there lies an unexplored hinterland of detail, where there is a very real risk that a host of commercial devils lurk. The deal as announced seems to be enough to stop imminent negative actions by manufacturers, such as the rumoured lay off of thousands of workers by Jaguar Land Rover. Nevertheless, we are a long way from a new environment in which manufacturers will be prepared to commit to the sort of large-scale investment desperately needed to drive growth in the UK economy.
If you are seeking professional advice for your business, Opus is here to help. You can speak to one of the members from Opus, who can discuss options with you. We have offices nationwide and by contacting us on 0203 995 6380, you will be able to get immediate assistance from our Partner-led team.