May 11, 2025

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Executive Summary

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In 2025, the reimplementation of tariffs by President Donald Trump has significantly altered the landscape of UK-US trade relations. This article explores the profound impacts these tariffs have on businesses and outlines strategic responses to navigate the challenges and opportunities presented.

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Key Points:

• Tariff Details:

  • Introduction of a 10% baseline tariff on all UK imports.

  • Specific sectors, including steel, aluminum, and automobiles, face a 25% tariff.

• Economic Impact:

  • Revised UK GDP growth forecasts and decreased business confidence.

  • Anticipated reduction in US GDP and increased prices and wages.

• Framework Trade Agreement:

  • Potential relief through tariff reductions and increased market access.

  • Benefits contingent on further negotiations, with universal tariffs remaining.

• Business Strategies:

  • Conduct audits for correct tariff classification.

  • Explore tariff engineering and renegotiate supplier agreements.

  • Consider sourcing changes and utilize trade rules and foreign trade zones and bonded warehouses.

• Strategic Adaptation:

  • Importance of staying informed about ongoing negotiations.

  • Engaging with trade experts to align business strategies with evolving trade policies.

 

This article will delve into these issues, providing insights and strategies for businesses to effectively manage the impact of the tariffs and optimize their operations in the current trade environment.

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My Perspective

As a global business and trade attorney and the Honorary Consul for Great Britain and Northern Ireland, I have spent decades advising companies on navigating the intricate web of global commerce. From my vantage point in 2025, the reimplementation of sweeping tariffs by President Donald Trump has profoundly altered the dynamics of UK-US trade relations, presenting both immediate disruptions and long-term strategic challenges, as well as opportunities, for businesses on both sides of the Atlantic. The recently announced framework trade agreement between the US and the UK may provide some relief to a few targeted sectors, but it will take some time to negotiate the full terms of a deal.  Because the US will maintain its universal tariffs on most imports from the UK, it is anticipated that relief will be limited.  However, there are strategies that companies can consider that will increase the likelihood that they can navigate these challenges by mitigating the impact of the tariffs on their business and allow them to take advantage of this changed trade landscape.

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The Tariffs

In early April 2025, President Trump invoked the International Emergency Economic Powers Act (IEEPA) to impose a 10% baseline tariff on all imports, including those originating from the United Kingdom. This unilateral move stunned many in the business community, especially given the traditionally strong alliance between our nations. Particularly hard-hit sectors included steel and aluminum, where a 25% tariff came into effect on March 12, 2025, and the automobile sector, including imported passenger cars and light trucks and auto parts, where a 25% tariff was imposed on April 3, 2025, and May 3, 2025, respectively, under Section 232 of the Trade Expansion Act. 

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The US-UK Framework Trade Agreement

On May 8, 2025, the US and the UK announced that the two countries had entered into a framework trade agreement that establishes what the parties claim will be a new foundation for economic cooperation, focusing on tariff reductions and greater market access in certain sectors.  For the US, this means lower tariffs and greater market access for beef, ethanol, pharmaceuticals and pharmaceutical active ingredients.  For the UK, this means greater market access for UK beef and a reduced tariff quota rate for 100,000 UK auto imports, as well as for UK steel and aluminum imports.  The 10% universal tariff on all other UK goods imported to the US will remain.  It is now up to the two countries to negotiate the details before businesses on either side of the Atlantic will see any benefits.

 

Impact of Tariffs on UK and US GDP

The economic consequences of the tariffs imposed prior to April 10, 2025, are potentially severe and widespread. As reported by The Times, UK GDP growth forecasts have been revised downward to a mere 0.8% for 2025 and 0.9% for 2026, due largely to a contraction in exports and a chilling effect on business investment. Business confidence has similarly eroded; a recent survey conducted by The Guardian revealed that approximately 75% of Britons now anticipate worsening economic conditions in the near term.  Analysis by the Center for Strategic & International Studies (CSIS) and the University of California, Santa Barbara (UCSB), finds that the proposed April 2 and earlier tariffs would lower U.S. GDP by 0.8 percent, while raising U.S. prices by 7.1 percent and U.S. wages by 6.3 percent.  The impact of the tariffs imposed in May on UK and US GDP has yet to be estimated.  Because the US-UK framework trade agreement is essentially an agreement to agree, we will not know the impact the potential trade agreement will have on either country until the parties finalize its terms.   

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How Businesses May Respond

Because it is uncertain when negotiations between the US and the UK will result in an enforceable trade agreement and 10% tariffs will remain on most UK imports, many businesses are grappling with how to reduce the impact of the tariffs on UK products that are imported into the United States.  From my perspective, the most pressing issue for businesses is not simply the cost of the tariffs themselves, but the uncertainty they inject into long-term strategic planning. Companies are grappling with increased complexity in customs compliance, origin certification, and risk management. To address these challenges (for purposes of this discussion, we will assume that the US buyer is the importer of record and responsible for the payment of any tariffs), I recommend businesses consider a number of different strategies:  

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• Product Classification and Reclassification Audit 

  • Effective tariff mitigation requires companies to ensure that they have classified all raw materials, components, and finished goods using the correct HTS code.  This means as an immediate first step, companies should audit the tariff classification of each raw material, component, and finished product in its supply chain that it imports into the United States.  If performed correctly, companies can identify any misclassifications and possibly identify opportunities to assign a different HTS code which may result in a lower tariff rate.  

• Tariff Engineering 

  • Product Changes - Companies should consider whether it is possible to modify the product design or manufacturing process slightly to achieve a more favorable tariff classification, potentially leading to lower import duties.  Such a practice involves modifying materials, structure, or assembly of a product to fit within an HTS code that offers lower tariff rates.  For example, this can be as simple as replacing parts from suppliers in China or other countries with high tariffs with similar parts from suppliers in the UK with much lower tariffs.  

  • Components v. Finished Product – Importing the components of a product separately rather than as the finished product also may yield savings.  In many instances, the total dutiable value of all of the components is much lower than the value of the finished product.  Plus, components, parts, or subassemblies may be subject to a completely different (and possibly lower) duty rate than the finished product.

• Supplier Negotiations 

  • Having conversations with your suppliers to renegotiate the terms of supply agreements also may result in cost savings.  For example, we have been able to negotiate provisions in supply agreements where the supplier agrees to bear some percentage of the tariffs paid by the company importing the products into the US either by providing a credit for tariffs paid or paid where the company is not able to pass the tariff on to the company’s downstream customers. 

• Sourcing Changes 

  • Companies also should consider diversifying their supplier base to suppliers located in countries with lower tariffs.  Based on the US-UK framework trade agreement, it appears likely that the tariffs on most goods imported from the UK will not exceed 10%  Imported steel and aluminum and many of their derivative products also will be significantly reduced from the current 25% tariff rate.  Plus, it also is likely that the tariff rates on UK automobiles and pharmaceuticals and pharmaceutical active ingredients will be much lower.  Therefore, companies currently using Europe or Asia as a base of operations for their manufacturing may want to consider sourcing these same goods from the UK.  Another option to consider for small value components and products is to import such goods to the UK and then, after taking into account US rules regarding country of origin (which can be complex), import the goods  to the US using the de minimis exemption which allows the import of goods from the UK to the US duty free if the value of a single shipment is under $800 (includes the cost of the goods, handling charges, freight, insurance, sales tax, and the cost of return freight if seller agrees to cover it).  US importers also should consider near-shoring production by shifting to suppliers in Mexico or Canada to take advantage of US-Mexico-Canada (USMCA) Free Trade Agreement or other free trade agreements that the US has with many of its neighbors in Central America and the Caribbean.  

• First Sale Rule 

  • The rule is applicable when goods are imported in a multi-tiered transaction, such as when a foreign supplier sells goods to a foreign middleman that, in turn, sells the goods to a U.S. company that is importing the product into the U.S. The U.S. buyer is permitted to use the price paid by the foreign middleman to the foreign supplier for valuation purposes, potentially lowering the customs duties on the goods when they are imported into the U.S.  This eliminates the middleman’s markup from the dutiable value of the product at the time of import.  This strategy may be applicable where a UK parent or subsidiary first acquires the goods from a non-US supplier and then sells the products to its US parent or subsidiary – the markup between the UK company and the US company that is required to comply with transfer pricing rules may not be included when determining the dutiable value of the product upon import into the US.  However, to take advantage of the rule, the U.S. company must be able to establish that the first sale was a genuine arm’s-length transaction and that the product was always destined for export to the U.S. 

• Foreign Trade Zones and Bonded Warehouses 

  • Foreign trade zones (FTZs) and bonded warehouses in the US offer businesses several key benefits, including the potential to defer, reduce, or even eliminate customs duties on imported goods.  No tariffs or duties are payable while goods remain in the FTZ or a bonded warehouse.  However, tariffs and duties become payable once they leave the FTZ or bonded warehouse and enter the US market.  Businesses may be able to avoid duties and tariffs altogether if the goods are exported directly from the FTZ or bonded warehouse to other countries.  It is important to understand that there are key differences between an FTZ and a bonded warehouse.  An FTZ allows for unlimited storage and permits value-added activities, like processing and assembly. On the other hand, a bonded warehouse has a five-year storage limit and is used primarily for storage and only limited manipulation, like repacking.  Bonded warehouses are a great option when a business has imported products that it intends to use in the future but has yet to determine tariff classifications or countries of origin.  

 

The tariffs imposed by the Trump Administration have undeniably introduced significant challenges, but they also present opportunities for businesses to innovate and adapt. By thoroughly auditing product classifications, exploring tariff engineering, and considering alternative sourcing and supplier negotiations, companies can effectively navigate the complexities of the current trade environment. Moreover, leveraging strategies such as the first sale rule and utilizing foreign trade zones and bonded warehouses can provide businesses with additional avenues to reduce costs and enhance competitiveness. These approaches not only help in managing immediate financial impacts but also contribute to building more resilient supply chains that can withstand future trade disruptions. As trade negotiations between the US and the UK continue, businesses should remain vigilant and informed about potential changes in current tariffs and the adoption of a formal trade agreement between the two countries that could affect their operations. Engaging with trade experts and staying updated on policy developments will be crucial in making informed decisions that align with long-term business goals. Ultimately, while the tariffs pose significant hurdles, they also offer a chance for businesses to reassess and optimize their operations. By adopting a strategic and flexible approach, companies can not only mitigate the adverse effects of the tariffs but also position themselves for success in a rapidly evolving global trade landscape.

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About the author: John Scannapieco is a partner at the global law firm, Womble Bond Dickinson (US) LLP and also serves as the Honorary Consul for Great Britain and Northern Ireland.  As a global business and trade advisor with over 35 years of experience, Mr. Scannapieco helps businesses navigate complex international markets, address issues related to foreign direct investment, trade, and trade policy, and facilitates cross-border transactions, including commercial transactions and acquisitions.