12 May 2025

Jonathan Sparks

Chief Investment Officer, UK, HSBC Global Private Banking and Wealth

The UK-US trade deal brings a welcome but modest step forward in easing the potential economic pain from tariffs. While this is a “deal” rather than a sweeping “agreement” the more positive mood music is a boost for sentiment as it eases uncertainty for CEOs. We’ll have to see how this news lands with a nervy UK consumer, investors will at least pare down their worst-case scenarios for the UK.

Tariffs on UK steel and aluminum have been dropped, and UK car exports - at least the first 100,000 units - will now face a reduced 10% duty instead of the previous steep 27.5%. While that’s a meaningful improvement for certain sectors, the broader 10% baseline tariff remains firmly in place across most goods and, given the US administration’s drive to increase US manufacturing, 10% could very well be the new 0%. That means the deal is more about easing friction than unlocking major new opportunities. Still, it gives some clarity and breathing space for UK exporters at a time when trade uncertainty has been high.

That said, this isn’t a game-changer for the UK economy. Concessions were made, such as opening up markets for US ethanol and committing to buy aircraft but for many exporters, tariff burdens are still higher than just a few months ago.

On a brighter note, UK gilts are offering nearly 2% real yields in the 5–10 year range, an attractive option for investors looking for stable, inflation-adjusted returns in a turbulent global backdrop.

India and the UK have struck a much broader agreement with India that slashes tariffs on both sides. Indian exporters now get almost 99% duty-free access to the UK which is huge news for sectors like textiles, jewelry, leather, pharma, and IT. On the flip side, India is cutting tariffs on about 90% of UK goods, including whisky, cars, cosmetics, and medical devices. UK whisky and gin makers will be thrilled as tariffs are dropping from 150% to 40% gradually. Indian textile and jewelry brands also get a smoother entry into UK stores. UK carmakers will now pay just 10% tariff instead of over 100%, which could really boost luxury car sales in India.

One of the standout parts of the deal is the easier visa access for Indian professionals—chefs, musicians, yoga instructors, and IT experts. There’s also a big relief on social security: Indian workers in the UK won’t need to pay national insurance for up to three years which will save money and encourage more mobility in worker. The UK is a services sector powerhouse and this deal opens the door to more sustained growth.

This deal is expected to boost UK–India trade by over £25 billion by 2040. India expects to create over 500,000 jobs, and the UK could see an annual economic benefit that’s estimated to boost GDP by 0.1% by 2040. It’s a win-win that should strengthen the economic ties for the long term. There are some concerns about the fiscal hit from the national exemption data privacy and IP protections, but the mood is upbeat. 

After months of tension, both countries have agreed to ease up on their tariffs. The US is cutting its duties on Chinese goods from 145% to 30%, and China is lowering tariffs on American goods from 125% to 10%. This 90-day pause is a chance to reset the tone.

Rather than going back and forth through the press or surprise announcements, the US and China are setting up a formal platform for trade talks. Senior officials from both sides will meet regularly, sometimes in China, the US, or even a neutral location to keep discussions going and avoid flare-ups. China will be represented by Vice Premier He Lifeng, and the US by Treasury Secretary Scott Bessent and Trade Rep Jamieson Greer. These meetings can happen in China, the US, or a neutral third country, based on mutual agreement. This should ease fears that the USD was heading for a mid-1980’s style devaluation. The lowering of tensions and the willingness of the US to negotiate should also dial-down the risk of more extreme downside scenarios – a move that should boost investors sentiment across EM assets were held back by tariff risks.

We expect US-China trade talks will support de-escalation of trade tensions and help avert the worse-case scenario of total trade decoupling. However, History suggests that it could take a long time to reach a detailed agreement, if one is possible. In 2018, the two sides also agreed to put their dispute “on hold” after a round of negotiations, but the US soon backed away from that deal, leading to more than 18 months of further tariffs and talks before the signing of the “Phase One” trade deal in January 2020.  Hence, to mitigate US policy uncertainty and stagflation risks, we stay focused on global diversification, multi-asset strategies, active management, and long-term structural themes. We advise investors to diversify from concentrated positions in USD assets into Europe and EM Asia for now.