Rapid Impact Analysis - 16 May 2025
The Future of UK, China Tariffs After US Negotiation Breakthroughs
Article Summary
Learn the details of the US-UK trade deal, as well as negotiations on UK and China tariffs. The UK agreement could be precedent for additional tariffs negotiations.
Highlights
- US framework agreement with the UK sets template for negotiations with other auto-exporting countries.
- US and China agree to pull back retaliatory tariffs for 90 days.
- US import tariffs on fentanyl (20%), steel and aluminum (25%) and vehicles (25%) from China remain.
- China drops tariff on US imports to 10%.
- China agrees to halt non-tariff barriers including restrictions on rare earth elements.
On May 8, the US announced that it had struck a framework for a potential bilateral trade deal with the UK, which the Trump Administration called the Economic Prosperity Deal.
While details are being developed and negotiated, the framework provides a view into what a new bilateral agreement could look like with the US. Specifically for the auto industry, it suggests a template approach which the US is expected to use as it negotiates auto-industry trade with other countries.
Days later, the US and China announced they had made enough headway to pause retaliatory tariffs, including non-tariff barriers, that each had imposed on the other April 8-9, 2025.
China tariffs and trade hostilities with the US on pause
Overall, the agreement to pause some tariffs between US and China exports has little direct impact on automotive imports and exports. The agreement sees both countries drop retaliatory tariffs, and China pull back on its most recent non-tariff barriers. The US reduced its reciprocal tariff against mainland China from 34% to 10%, though the 20% tariff meant to encourage China to slow the flow of illicit drugs into the US remains.
The US Section 232 tariffs of 25% on imported autos, steel and aluminum, as well as the Biden-era 100% tariff on EVs imported from mainland China, all remain in place. Under each of these, the 2.5% most-favored nation tariff also remains.
Non-EV autos exported from China to the US will see a tariff as high as 47.5%; other goods will see a 30% tariff. China has reduced its retaliatory tariff on US goods from 125% to 10%.
The US-China pause can be a benefit for both economies, in terms of cost as well as consumer confidence improvement with less imported inflation. A longer-term impact will depend on the 90-day negotiations, which could shift the outlook for trade relations between the US and China more substantially.
As comparatively few vehicles are imported from China to the US or vice versa, the changes have less immediate direct impact on US or China light-vehicle sales from a sourcing impact. The understanding is that China will ease non-tariff barriers, including restrictions on rare-earth elements (REE). This action could have a more substantial impact on US manufacturing—particularly for EVs and batteries, two sectors central to current automotive industry trends.
US, UK trade deal takes shape
The US and UK announced an outline for a new US-UK trade deal, also known as the Economic Prosperity Deal (EPD). The wide-ranging framework addresses several industries, with issues surrounding beef, agriculture and pharmaceuticals as well as autos. The auto sector impact is perhaps most significant for setting a potential template to be followed in spirit as the US negotiates with other countries.
The framework includes agreements related to the Section 232 tariffs on autos, auto parts and steel and aluminum. Agreements on those auto tariffs are being put into place for 90 days while the two sides negotiate the wider deal. The final trade agreement may codify autos, auto parts and steel/aluminum tariffs into the EPD, reshaping the landscape for US-UK trade relations in the automotive space.
If no agreement is reached, the Trump Administration can continue to impose Section 232 tariffs. Presuming a definitive agreement is reached, it will require approval by both the US Congress and UK government.
The handling of Section 232 tariffs will be in part addressed by quotas and stepped-up tariff levels. For autos, the United Kingdom would be able to export up to 100,000 units tariffed at 10% to the US; once the quota is met, the UK tariff increases to 25% on any additional vehicle.
A similar arrangement will be negotiated relative to the 25% auto parts Section 232 tariff. The reciprocal UK tariff rate of 10% set on April 3 holds. Relative to Section 232 industries, the final deal will also include rules of origin requirements which will prevent non-UK-based companies from taking advantage of the UK structure.
The overarching framework of the US-UK trade deal covers non-automotive industries as well as non-tariff measures which the countries agreed to improve upon, but the overall 10% and the autos import tariffs affected the auto industry most directly.
When announcing the agreement, the White House said, “Today’s action also sets the tone for other trading partners to promote reciprocal trade with the United States,” reflecting that the US president does expect other countries to make meaningful concessions as well. Other countries may also lower effective tariff rates through a similar quota mechanism.
S&P Global Mobility light-vehicle sales data indicates that US sales have included fewer than 100,000 vehicles from the UK since 2022; during the past decade, UK-sourced US light-vehicle sales peaked in 2017 at 224,000 units.
Evolving UK tariffs signal strategic shifts in US automotive trade policy
Given background, concessions and broad reach of the US-UK trade deal, S&P Global Mobility is updating its assumptions. Among them: We see more potential for the 25% auto tariffs on light vehicles and parts to be reduced sooner than expected. For our April 2025 forecast, we had presumed the 25% auto tariffs could remain in play throughout 2025 and 2026, though we expected it would be reduced to about 15% (outside of Canada and Mexico) by 2027.
As noted above, we expect that the US will use a combination of tariffs and quotas, particularly with Section 232 tariffs, for other negotiations. However, we see potential for a more aggressive approach with other countries than the UK faced. The volume quota may be notably lower than the country’s recent average, the tariff on vehicles below quota may be higher than 10%, and the tariff on vehicles over quota may also be a different rate.
The UK example also illustrates a situation where the US was more concerned with other industries. When it comes to negotiation with a country where the US is more concerned about autos and less concerned about other industries, the US may look for more aggressive automotive terms than what the UK has agreed to. In addition, the potential for the UK bilateral agreement to include rules of origin is also likely to be something the US could demand from other countries as well.
Uncertainty and strategic risks in global auto trade negotiations
The pause of the US-China trade war suggests that there may be some relief, but the macroeconomic forecast had presumed the US’ China tariffs would land at about a 60% effective tariff rate over time. These latest news suggests that the presumption may well be close to the outcome, depending on negotiations in the next three months. We do expect to see a front load surge of activity in both directions over the next 90 days.
However, the pause in retaliatory tariffs and agreement to negotiate over the next few months creates potential for less impact on the Chinese economy as well as improved US consumer confidence. Those factors could contribute to auto sales in both countries eroding less than anticipated in the April 2025 automotive industry forecast.
In both UK and China cases, a significant risk is for failed negotiations driving even more aggressive trade barriers, tariff and non-tariff.
High auto tariffs remain likely
Though the situation could evolve to be less dire than it seemed a few weeks ago, the longer-term impact remains to encourage increased US production, and a high-tariff situation is still likely. It remains difficult and time-consuming for automakers and suppliers to shift production. The trade situation also continues to shift and investment decisions continue to be made with lower confidence.
However, the activity does follow our earlier assumptions that, overall, lower-than-25% auto tariffs would emerge over time. The final tariffs still risk being notably higher than the 2.5% most favored nation (MFN) amount the US used most often.
S&P Global Mobility offers clients unique insights to navigate tariffs and more, allowing you to see opportunities others don’t. With 100+ years of automotive industry expertise, we offer tailored, ongoing advisory services designed to help you navigate tariffs and win.
This article was published by S&P Global Mobility and not by S&P Global Ratings, which is a separately managed division of S&P Global.