Welcome to the June BABN Policy and Trade Update.

May brought significant developments in transatlantic trade, with the main piece of news being the UK and US reaching a preliminary agreement to ease tariffs and strengthen bilateral economic ties. The deal, while not a full trade agreement, marks a breakthrough in reducing tariffs on key UK exports such as cars, steel, and aluminium. It is also the only deal that the US has signed since it imposed sweeping tariffs on major trading partners around the world.

The deal was certainly a step in the right direction. However, as BAB CEO Duncan Edwards noted, “UK exporters to the USA still face higher costs than before April 2nd” due to the general 10% reciprocal tariff that remains in place. Duncan also emphasised that the agreement “provides a foundation, but not a finish line,” and expressed hope that it would lead to broader efforts to remove tariff and non-tariff barriers between the two economies. Also worth noting, the deal has yet to be implemented.

In parallel, a US trade court ruling in late May challenged the legality of certain reciprocal tariffs, stating that the administration had overstepped its authority. Although the court initially blocked the tariffs, a federal appeals court reinstated them temporarily while the legal process continues. The outcome of this case could have significant implications for the future of transatlantic trade policy and negotiations with trading partners.

Meanwhile, the UK-EU Summit in Brussels reaffirmed commitments to regulatory cooperation and economic stability between the UK and the EU, with leaders discussing shared challenges including supply chain resilience and digital trade frameworks. These discussions are expected to shape the UK’s positioning in both European and global markets in the months ahead.

See below for a breakdown of policy and trade headlines and our published works.

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UK-US Trade Deal

8 May 2025

What happened: On 8 May, the UK and US governments announced a new agreement aimed at easing some of the recently imposed tariffs and deepening economic ties. The deal is part of a broader effort to grow the volume and quality of transatlantic trade, support job creation, and reinforce the special relationship through a stronger economic partnership.

The agreement includes both tariff and non-tariff elements. On tariffs, the US has agreed to:

• Reduce car tariffs to 10% (down from 25%) for up to 100,000 UK-made vehicles annually.
• Remove tariffs on core UK steel and aluminium exports through a new quota system.
• Maintain zero tariffs on aerospace products under Most Favoured Nation (MFN) terms.
• Provide a preferential, duty-free quota for US ethanol exports to the UK.
• Establish equal beef export quotas of 13,000 tonnes for both countries—though the UK remains firm on maintaining its food safety and animal welfare standards.
• Secure preferential treatment for UK pharmaceutical exports in anticipation of potential new US tariffs under a Section 232 investigation.

Discussions are ongoing to finalise the legal instruments required to implement these changes, with expectations that tariff reductions will take effect swiftly.

How BAB responded: BritishAmerican Business welcomed the agreement as a positive step, particularly the progress on steel, aluminium, and automotive tariffs. However, we remain clear that UK exporters still face higher costs than before 2 April, as the general 10% reciprocal tariff remains in place. As our CEO Duncan Edwards noted, this deal “provides a foundation, but not a finish line” for improving US-UK trading conditions.

We also continue to monitor developments in the US legal system, where a recent court ruling challenged the administration’s authority to impose certain tariffs. While a temporary stay has reinstated the measures for now, the outcome of the appeals process could have significant implications for future trade policy. Recent reporting suggests that the deal will be implemented in the coming weeks.

Looking ahead: The deal also lays the groundwork for future cooperation in digital trade, with both sides describing the upcoming digital economy agreement as “ambitious.” While the Digital Services Tax (DST) was not included in this round, further negotiations are expected.

Read more: You can read our full statement here.



Tariff Update

May 2025

Your monthly tariff update: here is a breakdown of the latest developments on US tariffs, accurate as of June 3rd.

Tariffs currently in force

• Tariffs on Chinese imports remain elevated. After a series of increases earlier this year, the total tariff rate reached 145%. However, following a temporary easing agreement reached on 12 May, both the US and China agreed to reduce reciprocal tariffs to 10% for a 90-day period, set to expire in mid-August. However, due to other existing duties, the effective tariff rate on most Chinese goods remains above 30%.
• Steel, Aluminium, Autos: President Trump on June 4 doubled tariffs on steel, aluminium, and derivative product imports from 25 to 50%. Tariffs on autos and auto parts remain at 25%.
• Autos and auto parts subject to his 25% Section 232 autos tariffs will no longer be also subject to other 25% tariffs that he has imposed on steel and aluminium or on Canadian and Mexican goods related to the US fentanyl crisis.
• Also, under the new US-UK agreement, the UK has secured:
• A quota-based exemption allowing core UK steel and aluminium products to enter the US at 0% tariff.
• A reduction in car tariffs to 10% (down from 25%) for up to 100,000 UK-made vehicles annually.
• Venezuelan Oil: Tariffs remain in place at 35%.
• Fentanyl-related Products: Imports from non-USMCA countries face a 25% tariff, while Canada and Mexico remain exempt under USMCA.
• 10% baseline tariff: The universal 10% tariff introduced on 5 April remains in effect for nearly all imports from all countries (in addition to MFN rates).
• Products that are subject to 232 tariffs, such as steel and aluminium, and autos and auto parts, or to be planned 232 tariffs, such as pharmaceuticals and semiconductors, are *exempt* from the additional reciprocal/universal baseline tariffs.
• For products that include US content, the US content is exempt from the new tariffs, as long as the US content is at least 20% of the value of the imported product. E.g. a Korean car that includes a 30% US content will only be tariffed at 70% of the import price.

Tariffs paused or delayed

• While the baseline 10% tariff introduced on April 5th for several trading partners (excluding Canada and Mexico) remains in effect, the additional "discounted reciprocal rate" that Trump had announced for 60 named countries has been delayed for 90 days. The pause is set to expire in early July, pending the outcome of ongoing trade negotiations.
• Electronics Exemption: As of April 11, 2025, smartphones, computers, semiconductors, and other key electronics are exempt from new tariffs.

Tariffs under investigation

• IEEPA & Section 232 Reviews: The administration continues to review additional tariff measures under the International Emergency Economic Powers Act (IEEPA) and Section 232, targeting sectors such as automotive, pharmaceuticals, and rare earths.
• A Section 232 investigation into pharmaceuticals is ongoing, with the UK having secured preferential treatment in anticipation of potential new tariffs.

BAB Letter to the US Senate Finance Committee on

the One Big Beautiful Bill (OBBB)

May 2025

Overview: BAB sent a letter to the US Senate Finance Committee regarding the One Big Beautiful Bill (OBBB) and Section 891. After following the movement of a number of proposals on international tax provisions culminating in Title XI OBBB and its passing through the House Ways and Means Committee, BAB lent into an advocacy effort to reduce potential negative impacts on UK businesses that would occur with the passing of the bill in its current iteration.

What we wrote: The letter focuses on 2 key points:

1. The tax enforcement provisions within the recently passed OBBB. The bill incorporates a new section of tax code (Section 899) which would allow the US Treasury to impose retaliatory withholding tax increases against entities from discriminatory foreign countries. It also proposes to modify the Base Erosion and Anti-Abuse Tax (BEAT) framework from 10 to 12.5, limit the Cost of Goods Sold (COGS) as BEAT to inventory and depreciable property, remove the $500m gross receipts threshold and 3% base erosion limit, and eliminate the services cost method exception (SCM).
2. The practical application of the previously enacted, but never used, Section 891. The policy, from 1934, allows for the doubling of tax rates on citizens and corporations of specified countries. Intended for retaliating against discriminatory foreign tax policies, Section 891 presents significant legal and practical uncertainties - particularly regarding scope, enforcement, and rigidity - raising concerns about its suitability as a modern trade tool without substantial clarification or amendment. 

Learn more: Read BAB's letter here. Please email Sophie (srahemanji@babinc.org) for further information. 

UK-EU Summit

19 May 2025

What happened: The UK and EU held a high-level summit in May, marking a renewed commitment to structured dialogue across a range of policy areas. The summit laid out a roadmap for future cooperation, particularly in areas where both sides see mutual benefit.

The centrepiece of the summit was a new security and defence partnership, published separately, which grants the UK significant access to EU defence initiatives and includes a commitment to explore cooperation on the EU’s SAFE instrument. This reflects a broader ambition to root the UK-EU relationship in practical collaboration rather than institutional alignment.

Beyond defence, the summit produced a common understanding on several key areas:

• Fisheries: A 12-year access arrangement for EU vessels in UK waters, replacing annual quota negotiations.
• Mobility: A commitment to explore a youth mobility scheme and potential UK participation in Erasmus+. Both sides also reaffirmed the importance of e-gate access for travellers.
• Sectoral cooperation: Progress on linking emissions trading schemes, UK participation in the EU electricity market, and a broad scope for future SPS (sanitary and phytosanitary) cooperation.
• Additional nods were made toward collaboration on competition policy, illegal migration, and pharmaceuticals.

Dig deeper: The Summit is a constructive step toward rebuilding trust and predictability in the UK-EU relationship. While the economic impact of the summit is modest - UK government estimates suggest a 0.3% GDP boost by 2040, largely from the emissions trading linkage - it provides a platform for deeper engagement in areas that matter to transatlantic business, such as regulatory alignment and mobility. The UK made several late-stage concessions, particularly on fisheries, to unlock progress. This reflects a clear political will to move forward pragmatically. However, the EU is expected to take a firm stance in upcoming technical negotiations - particularly on SPS - if progress stalls on mobility and youth schemes.

Looking ahead: Technical-level talks will now begin to flesh out the details of the summit’s commitments. The UK is expected to “bank” as much progress as possible ahead of the next OBR forecast, while the EU is likely to prioritise swift implementation of the defence partnership. Business groups on both sides will be watching closely for signs of progress on mutual recognition of standards and further market access.

UK spending review

11 June 2025

Overview: On 11 June, Chancellor Rachel Reeves will deliver her first multi-year Spending Review - the first from a Labour government in over a decade. The review is expected to set departmental budgets for the remainder of the Parliament and will be a key moment in defining the government’s economic priorities. The review will aim to balance fiscal discipline with the government’s broader missions: improving public services, driving economic growth, and restoring trust in public finances. While the economic headroom is limited, Reeves is expected to use the review to signal a shift in tone and ambition - prioritising stability, long-term planning, and a more strategic approach to public spending.