The 25% steel and aluminium tariffs have hit the UK too today but the UK government is reportedly working hard to receive a carve-out from the tariff action. UK Business and Trade Secretary Jonathan Reynolds held a call with Commerce Secretary Howard Lutnick on Sunday about a possible carve-out and PM Starmer brought up the subject when he met President Trump last month.
Chancellor Reeves on Monday also expressed confidence that a deal could be done with the US for the UK to receive an exception. The crux of the argument continues to be that the UK and US run goods trade that is broadly balanced. This may be the case but the UK government is probably more focused on the optics of a carve-out rather than the specific economic impact from these tariffs on the UK economy.
According to UK Steel, in GBP terms, the UK exported GBP 380mn worth of steel to the US in 2023, that down from GBP 490mn in 2017 before the first round of tariffs that hit in 2018. During the tariff period 2018-21 exports slowed to an average of GBP 320mn and under an agreed quota system, exports picked up and in 2023 totalled GBP 388mn. Total goods exports in 2023 totalled GBP 395bn, so from a total UK export perspective these steel exports are very small although it would still have a greater specific impact on the UK steel industry.
If the government was to receive a carve-out it would reinforce the prospect of the US treating the UK differently to other countries with the strongest argument being that UK-US trade is roughly balanced. It certainly looks likely that the UK, unlike the EU, will refrain from retaliation. Chancellor Reeves has indicated before that that would not be the approach given the negative impact on the UK and further dialogue would be most likely.
Pound performance has been driven in large part by the relative yield move with BoE caution helping the front-end of the UK curve relative to the US. The 2-year swap spread has jumped by about 50bps since the US CPI print in February. But optimism in relation to the US-UK relationship and the balanced trade providing the reasoning for less aggression from the US on UK imports. If the UK fails to get that carve-out even through the economic impact is marginal, the pound could suffer relative to where expectations are now.
