UK ministers are redoubling their efforts to agree a trade deal with Donald Trump after he announced sweeping 10% tariffs on British exports to the US.
Downing Street has said talks were at an “advanced stage” and officials have indicated that the broad outlines of a deal have been agreed.
It is not the first time that the prospect of a UK free trade agreement with the US has been talked up. Brexiters have long touted such a deal as a prize of the UK leaving the EU, and it was a key ambition of Theresa May’s during Trump’s first term.
Kim Darroch, who was ambassador at the time, said this week he was “quite cynical” about the prospects for a deal and that regardless of who was in power in Washington, the US “try and strike a very tough deal on trade”.
There several potential stumbling blocks to an agreement. The government is focused on pursuing a relatively narrow deal focused on advanced technologies to avoid some of the pitfalls.
Chlorinated chicken and hormone-treated beef
Reynolds revealed on Thursday that Trump’s administration had raised objections to the UK’s food safety standards during the talks.
Speaking to BBC Breakfast, he said that while it was not true – as Trump has claimed – that the UK imposed a 10% tariff on US goods, “they have an argument on the US side that there are other barriers to trade”.
“For example, we have a food standards regime which we’re very committed to in the UK which they have some objections to,” he said, emphasising that Labour was standing by its manifesto commitment not to water down these standards.
The prospect of American chlorine-washed chicken or hormone-treated beef being sold in the UK has long been controversial. Agriculture could be the one of the biggest stumbling blocks in the talks given Trump’s voter base in rural US states. As a concession, the UK has drawn up proposals to lower tariffs on some agricultural produce.
Digital taxes
Another issue targeted by Trump has been the UK’s digital services tax, a 2% levy introduced in 2020 on the revenues of tech companies including Amazon, Google and Apple. It raises around £800m a year.
The president signed an order in February to investigate potential tariff retaliation against specific countries that had imposed digital taxes, including the UK.
The Guardian revealed this week that as part of its negotiations towards a deal, the government has drawn up proposals to reduce the amount paid by US tech titans and broaden the tax to apply to a wider range of companies – without reducing its total take. This is thought to be among the most significant concessions the UK has offered the US.
But any decision to slash taxes will be controversial at a time of public spending pressures – critics will say the government is pursuing the wrong priorities.
Online safety laws
There are growing concerns that the UK’s new digital safety laws – or their implementation – could be jeopardised in a deal as Trump champions the interest of US big tech.
Under provisions in the Online Safety Act, which came into force in March, social media companies face significant fines if they fail to tackle illegal content on their platforms. Companies that breach could have to pay £18m or 10% of worldwide revenue, which would run to billions for Google or Facebook’s parent companies.
The trade department did not deny reports on Thursday that as part of its negotiations, it had committed to reviewing the enforcement of the UK’s online safety laws. Online safety experts have expressed alarm and warned that the suggeste proposals are a “sellout of children’s safety”. This issue has the potential to become the most contentious in any eventual trade deal.
VAT
Trump is waging a crusade against VAT, a tax on goods and services used in more than 170 countries around the world. It is one of the biggest sources of revenue for European governments, including the UK.
His argument is that the 20% VAT charged on goods sold in the UK and Europe is effectively a tariff on exports because the US does not have an equivalent universal sales tax.
There is no indication that the UK is considering any change to VAT as a result of US demands. Reynolds acknowledged important “differences of opinion” with Trump over the tax. “We would say that it applies, and it does apply, to domestically produced goods as much as goods that come into the UK, and that is not trade-distorting,” he told MPs on Thursday.
