The United States and the United Kingdom announced a framework for a trade agreement. The UK's share of total U.S. imports is only about 2%, so this agreement is expected to result in a mere 0.1 percentage point decrease in the overall effective tariff rate from 23.3% to 23.2%.
However, global investment bank JP Morgan noted that this agreement is significant in that there is a high likelihood of the U.S. pursuing similar structured agreements with other countries in the future, regardless of the practical impacts of this agreement.
According to Shinyoung Securities on the 9th, JP Morgan revealed this in a report titled "Implications of the U.S.-U.K. Trade Agreement." The key point of this agreement is the decision to maintain a basic tariff rate of 10%. The U.K. originally applied a lower tariff rate to the U.S., and despite the U.S. having a trade surplus with the U.K., the basic tariff rate has not decreased.
JP Morgan said, "U.S. President Donald Trump mentioned 10% as a 'low figure,' suggesting that higher tariff rates could be applied in negotiations with other countries," adding, "There is a high possibility that a basic tariff of at least 10% will be applied to most countries."
In terms of high tariff rates by industry, there was limited flexibility aside from the basic tariff rate. Looking at automobiles, only 100,000 British cars imported into the U.S. annually will be subject to a 10% reciprocal tariff, while any excess will be subject to the existing 25% tariff.
JP Morgan noted that since the share of British cars among U.S. imports is only 2.5%, it seems the U.S. could afford to make limited concessions, while it would be hard to expect similar conditions for Japanese cars, which make up 12%.
As a result of this agreement, the United States has raised trade barriers based on effective tariff rates, while the United Kingdom has lowered its barriers, creating an asymmetric structure. The Trump administration is likely to push for similarly favorable negotiation outcomes with other countries going forward. The problem is that the European Union (EU) has indicated potential retaliatory actions, raising the possibility of conflicts during future negotiations, according to JP Morgan.
JP Morgan said, "Although the U.S.-U.K. trade agreement was concluded quickly after the announcement of 'Liberation Day,' it appears that a draft was prepared prior to that," adding, "In future trade negotiations with other countries, the basic tariff rate of 10% may become a fixed framework for negotiations."
It noted that "In the future, a U.S.-centric unilateral tariff system is likely to act as a structural variable in the restructuring of the global supply chain and changes in trade order," highlighting that medium-term friction with trading partners and market uncertainties are expected to continue.