After a few days of reflection and further investigation, including reading the text of the agreement itself, I think it is still fair to characterize this agreement in the positive light that we first reported it to our members. The agreement commits both countries to the negotiation of a broader Economic Prosperity Deal covering digital and physical trade as well as supply chain issues, economic security and investment screening. More concretely, it also, in the more immediate term, promises a lowering of the current rate of duty of 27.5% on car and car part exports to the USA to 10% for up to 100,000 units and a reduction of tariffs on steel and aluminum to zero. There is also some enhanced market access for beef (both ways) and for ethanol exports from the US to the UK. Important to note, these changes are not coming into immediate effect as there are various internal processes to complete, so the car exporters can’t breathe easy just yet.

So far, so good. But the real upside of this announcement will lie in the future negotiation of the bigger Economic Prosperity Deal itself, the principles of which were outlined in fairly broad strokes in the terms sheet last week which you can read here. It is only through this wider agreement that the UK can get back to the status quo ante on tariffs and reach agreement on the closer economic partnership and digital trade future that both sides (and BAB) say they want. I have absolutely no doubt that the UK team will be pushing for these negotiations to start as soon as possible but the bandwidth available to the USTR and US Commerce teams will be limited by the queue of other countries and groups trying to get their own tariff deals over the line. As we have done before on other US-UK agreements, BAB will provide a detailed analysis of the items contemplated in the EPD and regular updates on progress towards the goals. A positive sign is that even in the few days since the announcement it looks like aerospace parts have been added to the list for tariff exemptions in the first round…let’s hope there is more to come.

While there may be some progress on tariffs, albeit against adjusted expectations, there are other issues coming down the pike that will have the UK and other governments concerned. First, the ambition to bring more tv and movie production back to the US…or is that California? Over recent years, the UK has built a thriving tv and film production business, around its undoubtedly brilliant talent in front of, and behind, the camera, its growing studio infrastructure and a set of tax incentives that make the UK very competitive. This seems an entirely legitimate strategy and one that is not only followed by other countries like Australia, Canada, Czech Republic and Ireland but also by other US states like New York, Michigan and, famously and most successfully, by Georgia. Much of the dynamic competition between states to attract business and people is driven by tax competition, so this seems like a strange issue for the President to focus on. And anyway, in our experience, people related costs are integral to making production location decisions, which on their own, often make California the least competitive option.

And finally, there is drug pricing. Picking up on unfinished business from his first term, the President has issued an executive order the intent of which is to ensure that prices for prescription drugs in the USA are no higher than the lowest price for the same drug in international markets. The structural difference between the healthcare systems of the USA and the UK, with its single payer and single approver for drugs and treatments, has given the UK a major negotiating advantage on prices, which it should be no surprise that it has used. And the UK is far from being the only country which pays less for the same products than is charged in the US. As with so many issues in this first period of the new presidency, we are short on detail as to how this Most Favored Nation approach might be made to work, but the potential implications for pricing, trade and investment decisions are huge.

As you might imagine, it has been a busy month for the BAB team in our offices in NYC, London and Washington with our usual mix of round table discussions and other events for our members. We added a visit to Charlotte at the start of May for a conference of the British American Business Network of affiliated chapters hosted by the excellent team at BABC Carolinas. We had a great group of companies at the conference and thanks to new HM Trade Commissioner for North America, Oliver Christian, for joining the meeting. Oliver has been getting around the country to meet UK businesses and US investors in the UK and it is great to have him here.

We will keep members updated on developments on all the policy issues that we are following in the usual way and if you have comments or questions, please just let us know.