UK pins hopes on US trade talks after Trump tariff blitz

By Kate Holton and Catarina Demony

LONDON (Reuters) - Britain said it believed a trade deal with the United States was close as it sought to soften the impact of U.S. President Donald Trump's sweeping tariffs which threaten an escalating global trade war that would hurt its open economy.

Britain was spared the most punitive treatment in Trump's tariff announcement on Wednesday when it was hit with the lowest import duty rate of 10%.

London said that decision vindicated its approach of trying to strike a new economic partnership with the U.S., rather than meeting fire with fire. It also reflected the relatively balanced trade flows between the two countries on goods.

But Britain's economy, which has been sluggish largely since the 2007-08 global financial crisis, is vulnerable to a global economic slowdown. Weaker growth could force the government to cut spending or increase taxes to meet its own fiscal rules.

Business minister Jonathan Reynolds said Britain, as an outward-facing economy, was "exposed not just to decisions between ourselves and the United States, but that wider global environment".

He told the BBC it was "not inaccurate" to say the two sides had agreed on the broad outline of a deal, which might secure a carve-out on tariffs, but that it had not yet crossed Trump's desk.

"We've got to keep this work going," he said, adding that he recognised Britain was already in a better position than lots of other countries who are facing tariffs of 20% or higher.

Britain said it would consult its companies on the implications of any retaliatory action it could take on tariffs, and published a list of 8,000 product categories that could be included in any response. It said this process would be stopped if the two sides could agree on a deal.

PAINFUL CONCESSIONS

Britain must decide how much it is willing to concede to Trump. Trade experts warn that his demands could force it to confront sensitive issues from trading ties with the European Union and China to how it treats its large cultural sector.

Prime Minister Keir Starmer told business leaders on Thursday that trade talks were continuing.

"Nonetheless, I do want to be clear I will only strike a deal if it is in our national interest," he said at a meeting in Downing Street.

Britain had argued that it should not be punished by Trump's tariffs because trade flows between the two countries were broadly in balance and its exports were mostly in services, which unlike goods do not typically incur tariffs.

UK goods exports to the U.S. have risen by 1.8% in the period since the end of 2019, while rising by 40% to the euro zone over the same time.

But British manufacturers are part of European and global supply chains, meaning they could be hurt by retaliation against Trump's tariffs. China and the EU have vowed countermeasures.

Allie Renison, a former government adviser on trade, said that while Britain had been trying to agree to a relatively narrow, tech-focused deal with the U.S., Republican members of Congress would push for greater access to Britain's agricultural markets.

Britain has offered to more closely align with the U.S. on areas such as tech and artificial intelligence, opening the way for the U.S. government to demand that Britain relax some of its regulations around social media and artificial intelligence.

That could have implications for copyright rules for Britain's cultural sector. "If that gets dragged in, that could be a more tricky position for the UK," Raoul Ruparel, a former adviser to ex-prime minister Theresa May and now director at the Boston Consulting Group, told Reuters.

Attempts to strike a bilateral trade deal during Trump's first term in 2017-21 ran into opposition from Britain's government over measures to lower animal welfare and environmental standards.

(Additional reporting by Sarah Young; Editing by Kate Holton and Toby Chopra, graphic by Andy Bruce; editing by Mark Heinrich)