UK mulls cutting US car tariffs to land trade deal

The Chancellor of the Exchequer said she wants “to see tariff and non-tariff barriers reduced between the UK and the US,” as the government seeks to lower trade taxes imposed by President Donald Trump.

A document circulating among US business groups and unions is seeking views on a potential deal with the UK. This deal is focused on lowering UK tariffs on US cars to 2.5% from their current 10%.

If the UK cuts the US car tariffs, Britain would expect to see Trump cut his already imposed 25% tariff on UK car imports to America.

One official said the idea, first reported by the Wall Street Journal, was feasible and could be achieved without the UK having to cut tariffs on car imports from other trading partners – particularly China, which the US has heavily imposed tariffs on.

When asked if the UK was willing to cut its tariffs on the US to 2.5% as part of an agreement, Reeves said she would not give a “running commentary” on the numbers and that the UK was “not going to rush into a deal”.

A spokesperson for the UK Prime Minister was also tight-lipped when questioned about the report, but refused to rule out lowering tariffs on US automotive imports as part of a trade deal.

“We’re having trade talks with the US to seek to reduce barriers to trade between the UK and the US so I’m not going to get ahead of those talks,” they told reporters. “But obviously we’re having constructive discussions with the US.”

Reeves also said the government was confident that working with our partners in the US we can get a better trading relationship and build on the substantial trade that already exists between the two countries. “We want to get the right deal for Britain, to better support our industry, our jobs and consumers,” she added.

What are tariffs?

A tariff is a tax on imports imposed by the government and typically paid by the company importing the goods – in this context, cars. Tariffs are usually calculated as a percentage of the value of the imported goods. For example, a 25% tariff on a £20,000 imported car would add £5,000 to its cost.

While tariffs are meant to protect domestic businesses, consumers may end up paying more for cars if importers pass on the higher costs instead of absorbing them or reducing imports.

US carmakers – including General Motors and Ford – have previously urged the president to exempt imported cars and vehicle parts from tariffs.

What does this mean for UK drivers?

There are currently reports that Trump is considering exemptions for carmakers from some tariffs announced by his administration. The confirmation follows a Financial Times report that Trump is planning to exempt car parts from tariffs on imports from China that he imposed to counter fentanyl production.

If the tariffs are paused, the added 25% tax on imported vehicles would be temporarily lifted. This could reduce the overall price of foreign-made cars, especially if you plan to buy cars from countries such as Japan, Germany, or South Korea.

With fewer tariffs, carmakers may also be willing to import a wider range of cars, increasing availability and variety of cars in the market. This could help if you’re looking for a specific model that was previously made more expensive due to the tariff.

While lifting these tariffs may benefit consumers, it also introduces uncertainty about the long-term impact, especially given that Trump’s previous tariff revisions have already caused global market instability. This could make both carmakers and consumers hesitant, as they remain unsure whether the tariffs will be reinstated after the pause.

There’s also a case of demand and interest for American-built cars even if the UK didn’t have tariffs on US car imports. Phil McNamara, Editor-at-large at Auto Express, says that there’s not much appetite for US cars in the UK.

He said: “A Ford topped the new-car sales charts in both the UK and the US. But not the same Ford: we flocked to the Puma, a tiddly crossover dwarfed by America’s top-selling F-150.

“That’s one reason why President Donald Trump’s plaintive cry for Europeans to buy more American vehicles or face tariffs is hollow and self-serving. So many American vehicles don’t fit our tastes or use cases.”

What if Trump permanently goes ahead with the tariffs?

With tariffs in effect, you could face price hikes on popular models from German brands such as BMW, Audi, and Mercedes, which rely heavily on sales in the US market.

According to Mike Thompson, COO at Leasing Options, these manufacturers may increase UK prices to offset losses from US tariffs as a result. This could make premium vehicles less affordable for British car buyers.

Reshuffling global supply chains in response to tariffs may also affect availability. Manufacturers might prioritise markets with fewer trade barriers, meaning you could face shortages of certain models. For example, EVs such as BMW’s i4 and iX could be redirected to regions with stronger demand or lower tariff concerns.

This poses a challenge for UK drivers, especially with the 2035 zero-emissions target and the upcoming ban on new petrol and diesel cars. Trump’s tariffs could also disrupt global production and supply chains, potentially making it harder for the UK to secure the electric cars needed to meet its Zero Emission Vehicle (ZEV) mandate and transition goals.

Tariffs could also lead to shifts in buying behaviour, with an ‘economic wobble’ caused by global trade tensions potentially putting pressure on household finances. When that happens, people typically tighten their belts, which could drive used car prices lower as demand softens.

The industry has their say

Economists have raised red flags about Trump’s approach, warning that tariffs could drive up prices across the US. A study by automotive consultancy Anderson Economic Group recently found that blanket tariffs on Canada and Mexico could increase car prices by up to $12,000.

With major car exporters – including Mexico, Japan, South Korea, Canada, and Germany – potentially affected, the economic consequences could be far-reaching. However, White House official Will Scharf has argued that the tariffs could generate over $100bn in annual revenue for the US.

Meanwhile, INEOS Automotive argued that the EU has neglected the tariff situation with the US, despite Trump’s clear intentions to implement tariffs, and that European leaders have failed to come to the table to negotiate a better solution.

“This is what happens when politicians sit on their hands,” said Lynn Calder, CEO of INEOS Automotive. “As a growing EU-based automobile brand, we are vulnerable to tariffs, and we need our politicians to support our business, our jobs and our economies. We need urgent and direct political intervention on tariffs.”

Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders (SMMT), expressed disappointment over the tariffs. He warned that additional tariffs on UK-made cars could harm the long-standing UK-US trade relationship, as US consumers enjoy British-built vehicles and UK drivers buy American-made cars.

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