USD: Much ado about little – Commerzbank

Yesterday afternoon, Donald Trump finally presented his first trade deal with the United Kingdom in the Oval Office. However, despite all the fanfare, it must be said that the substance was rather thin once again. There was much talk of the great opportunities that this deal offers both countries, Commerzbank's FX analyst Volkmar Baur notes.

US-UK trade deal is a warning sign

"The US will probably gain preferential access to UK markets for ethanol and agricultural products, with beef being mentioned repeatedly. The size of these markets is estimated at USD 700 million for ethanol and USD 250 million for agricultural products. Taken together, this amounts to less than a billion US dollars — less than 0.5% of last year's US exports. In addition, a major UK airline has agreed to purchase USD 10 billion worth of aircraft from the US. At first glance, this sounds like a much bigger deal. However, the United Kingdom already purchased aerospace products worth USD 10 billion last year. Furthermore, no timeframe has been given for when this purchase volume is to be executed."

"Meanwhile, the 10% reciprocal tariffs on UK exports to the US remain largely in place. With a few exceptions. The tariff on steel and aluminium will be set at zero. However, these two items together only accounted for 2% of UK exports to the US last year. Additionally, the UK will be permitted to continue importing aircraft turbines and parts into the US duty-free. This is likely to ensure that US aircraft manufacturers continue to have access to these products. Lastly, the UK will be permitted to import 100,000 cars per year into the US at the reduced tariff rate of 10%. Otherwise, a tariff rate of 25% applies to cars and car parts imported into the US."

"The 10% tariff seems to represent a kind of lower limit for the US. Any other countries currently negotiating with the US cannot expect the tariffs to be abolished. Therefore, the effective tariff rate in the US, which was 2.4% last year, is likely to rise to at least 10%. Even in a best-case scenario. No major leaps forward should be expected in the upcoming deals. The US-UK deal contains only cosmetic changes. Negotiations with other countries, especially the EU and China, are likely to be much more challenging. Granting preferential access to the US for the UK's agricultural markets would contradict the WTO's 'most favoured nation' rule."