The UK is trying to negotiate an exemption from tariffs on imports into the US before April 2, when President Trump is expected to announce sweeping tariffs on US trade partners
US President Donald Trump and UK Prime MinisterKeir Starmer held “productive negotiations” regarding a US-UK economic deal and said they will “continue at pace,” according to a Downing Street statement.
This comes as the UK is trying to secure an exemption fromthe tariffs the Trump administration plans to apply on imports into the US beginning April 2 — a day labeled by Trump as “Liberation Day.”
The US recently announced a 25% import tax on all cars imported into the country, which is expected to affect British luxury car makers such as Rolls Royce and Aston Martin. The levy is on top of a series of tariffs set to be announced on April 2, which could include a general 20% tax on UK products in response to the rate of VAT.
Starmer has said the UK “reserves the right” to introduce reciprocal tariffs on the US if a deal to exempt the UK cannot be reached.
But the UK’s Office for Budget Responsibility (OBR) has warned the impact of imposing reciprocal tariffs on the US would be worse for the UK than allowing the levy to go ahead without response. The UK has so far not retaliated after the US imposed tariffs on its steel industry.
Successive UK governments have tried to seal a trade deal with the US ever since Britain left the European Union in 2020. Abolishing or reducing the digital services tax on US big tech firms, including social media companies, search engines and online marketplaces, is reportedly being considered as part of the negotiations.
The independent Office for Budget Responsibility (OBR) has warned a reciprocal trade war would wipe billions off economic growth and all but eliminate the headroom Chancellor Rachel Reeves has to stay within her self-imposed fiscal rules. The OBR’s latest economic forecast, published on Wednesday, said GDP would be 0.6% lower than forecast this year and 1% lower next year in the most “severe” scenario, in which the UK and other nations retaliated to Trump’s tariffs.
This scenario would “almost entirely eliminate” Reeves’ £9.9 billion headroom against her fiscal rules, which could lead her to implement tax rises or further spending cuts if she wanted to stay within them.
In an alternative scenario where the UK does not retaliate, the OBR has forecast a smaller reduction in growth, with GDP 0.4% lower than expected this year and 0.6% lower next year.
It is unclear how the UK would retaliate if tariffs do come into effect. There are a range of options available, from duties on sectors where British products are particularly important to the US, to focusing on specific products like Harley Davidson motorcycles.
UK car exports are worth about £7.6bn per year, and the US is the second largest market for UK cars after the European Union, according to car industry body the Society of Motor Manufacturers and Traders (SMMT).
Trump’s plan is expected a to hit British luxury car makers such as Rolls-Royce and Aston Martin. The US president argues his measures will help American manufacturers and protect jobs, despite warnings prices could go up for consumers. Earlier on Sunday, Trump said that he “couldn’t care less” if carmakers raise prices as it meant “people are gonna buy American-made cars”.
