The recent deal on trade reached between the United Kingdom and the United States is more like a framework deal for future agreements and has a limited effect, said British economist Marc Ostwald.
Ostwald commented on the preliminary pact signed on Thursday by the U.S. and the UK governments over tariffs on some goods traded between the two countries in an interview with the China Global Television Network (CGTN).
Under the terms of the agreement, levies on British steel and aluminum exports to the U.S. will be eliminated, and duties on up to 100,000 British-made vehicles per year will be lowered from over 25 percent to 10 percent. In return, the UK will allow a tariff-free quota for 13,000 metric tons of U.S. beef and scrap tariffs on American ethanol imports.
The Trump administration had announced in April that it would impose sweeping "reciprocal tariffs" on America's trade partners all over the world, including its close allies.
Despite the positive steps taken by the U.S. and Britain, the Trump administration's blanket 10-percent tariffs on imports from countries around the world still apply to most UK goods entering America.
Ostwald, who serves as chief economist and global strategist at the ADM Investor Services International, a multi-asset investment brokerage company in London, shared the insights on the potential impact of the deal on the UK's economy.
"As Lord Mandelson, the UK ambassador to the United States said, it is really much more of a framework deal for future agreements and we'll have to see what the substance of those is in terms of its impact on the UK economy, it's really very minimal. I think the important aspects are that it reduces the overall impact of basic tariffs to round about seven percent from 10 percent. But a few months ago we were on zero, so it's not as bad as it would have been without it, but it's not good either. This is also a signal moment for the rest of the world looking to negotiate with the U.S.," the economist said.
However, the modest relief from the tariffs is still shadowed by tight quotas and long-term uncertainty in the automotive industry.
"The auto sector tariff reductions are a reminder that the 10 percent remains in place, even though it's better than 25. Significantly, it's on a quota of 100,000 now for the UK, that's probably okay. It probably doesn't have much more of a capacity. But if the sector were to build up in coming years, then that would obviously be a problem, and it does basically place a cap on the growth of UK auto exports to the U.S.," he said.
He also cautioned that the deal's benefits are even murkier when considering the globalized nature of UK supply chains and indirect trade routes.
"The other part, which I think is more subtle, is a lot of UK trade with the U.S. doesn't necessarily in terms of final export point to the U.S. come directly from the UK. Indeed, it's about 50 percent which comes from other jurisdictions, be Canada, Mexico, China, the EU, and so those particular items where the UK is making intermediate goods, for instance aircraft, really is wholly dependent on what happens with negotiations with those countries. So there isn't a lot of benefit there," said Ostwald.
UK-US framework deal on trade to have minimal impact to UK economy initially: economist
