The first trade agreement of President Trump’s 2nd term in the White House has gone to the UK.
Unveiled on VE Day amid much symbolic fanfare, the deal removes the long-standing 25% tariffs on British steel and aluminium, and slashes duties on UK car exports to the US from 27.5% to 10%—albeit capped at 100,000 vehicles annually. In return, the UK has offered tariff-free access to US ethanol and agreed to open up its market to American beef – a reciprocal arrangement.
For wealth managers, the announcement brings both opportunities and ambiguities. While the move is being hailed as a “historic breakthrough” by both Downing Street and the White House, the reality is more nuanced. The deal is modest in scope, sector-specific in its beneficiaries, and raises fresh questions about regulatory standards, political trade-offs, and the UK’s longer-term trade positioning.
Early Winners: Aerospace and Autos
The most immediate market reaction came in the industrials space. Shares in Rolls Royce spiked on news that its aerospace engine exports to the US would now be exempt from duties, in conjunction with a major $10 billion Boeing procurement deal. Likewise, engineering firm Melrose also saw gains, with investors pricing in the upside from reduced friction in key transatlantic supply chains.
“This deal appears ultimately favourable for some of the UK’s largest exports,” said Lindsay James, investment strategist at Quilter, who pointed to auto parts and aerospace as clear beneficiaries. “Share prices of Rolls Royce and Melrose have risen sharply on the news that tariffs have been reduced, or in some cases eliminated.”
The UK’s automotive sector, long craving positive news post-Brexit, received a morale boost. Jaguar Land Rover, for example, can now export up to 100,000 cars to the US annually at a reduced 10% tariff—effectively preserving its status quo in the American market.
But the cap also means limited upside, as Rella Suskin, equity analyst at Morningstar, explained: “Jaguar won’t gain a competitive edge over European rivals. Their 2024 US sales already exceeded the cap. Meanwhile, BMW and Mercedes, who manufacture SUVs in the US, will benefit more significantly from tariff relief on parts and potential export credits.”
Suskin added that fully import-reliant brands such as Audi and Porsche, whose SUVs compete directly with Range Rover, remain at a disadvantage—positioning this deal as a relative win for UK manufacturers, but not a standout success versus global competitors.
Agriculture and Regulatory Trade-Offs
The inclusion of US beef and ethanol in the agreement has drawn political fire, raising concerns over UK food standards and the risk of undercutting domestic producers. While government officials insist that “no standards have been lowered,” some in the industry fear that long-held red lines may have been crossed to secure a deal with Washington.
“Perhaps most controversially, the UK has promised to open up its markets to US agricultural products,” noted Quilter’s James. “This suggests the government was somewhat eager to strike a deal and may have compromised more than expected.”
For wealth managers with client exposure to UK farmland or agriculture-linked investments, the potential for margin pressure and increased competition from US imports will need to be watched closely.
Market Sentiment: Sober and Split
Despite the political headlines, UK markets responded cautiously. Susannah Streeter, head of money and markets at Hargreaves Lansdown, noted that the FTSE fell back in afternoon trading even as Wall Street moved higher. “This suggests investors view the deal as more favourable for the US than for the UK,” she said. “The pound also lost ground against the dollar.”
Streeter also raised red flags about the future of the UK’s digital services tax, hinting at a possible compromise to secure a broader digital trade deal. “Reducing this tax could help British firms but would be politically controversial, especially given the dominance of American tech firms and the impact on Exchequer revenues.”
Portfolio Strategy: Sector Selectivity Is Key
With specific sectors such as aerospace, autos and industrials likely to benefit from lower tariffs and improved access, managers may find selective opportunities to overweight quality UK exporters with US exposure. Yet the broader deal lacks the comprehensiveness to lift sentiment across the FTSE wholesale.
Thomas Moore, Senior Investment Director at Aberdeen, advised looking at the deal’s geopolitical signals: “The US appears open to negotiating further trade agreements. If this thaw extends to other nations, particularly China, it could fuel broader market optimism.”
That sentiment was echoed by Tom Shave, President of Europe and Asia-Pacific at Ryan, who noted that the UK’s recent deals with the US and India send a strong “open for business” message. He added that, coupled with the Bank of England’s recent interest rate cut, the timing could support business confidence and selective growth across sectors.
The Political Balancing Act
While the government will hail the agreement as a diplomatic win, it comes with political baggage. Prime Minister Keir Starmer faces criticism that the UK has bent too far to Trump’s demands, particularly with upcoming negotiations still pending with the EU.
“Doing a deal with Trump will be a double-edged sword,” said Streeter. “It may improve trade prospects and growth, but it complicates relations with Europe and leaves the UK exposed to the whims of a volatile White House.”
With nearly 90 trade deals still to be re-negotiated before the July 8th deadline, the risk of reciprocal tariffs remains high. As Quilter’s James observed, “this is an encouraging start, but it still leaves a meaningful burden of tariffs in place. Wealth managers should expect more uncertainty—and potentially more volatility—in the months ahead.”
