UK-US trade deal brings relief to automotive sector

SMMT Chief Executive Mike Hawes discusses the impact of recent trade agreements and the need for domestic competitiveness and EV incentives

UK-US trade deal brings relief to automotive sector

The recent implementation of the UK-US trade agreement marks a significant moment for the automotive sector, offering immediate relief to many UK manufacturers reliant on the US export market.

This deal, a notable diplomatic achievement, is the only one negotiated and in force since the Section 232 tariffs were introduced. It allows over 65,000 UK cars to benefit from reduced tariff rates until the end of 2025, with an annual limit of 100,000 units from 2026. While the new 10% tariff is an increase from the previous 2.5%, it establishes a framework for future transatlantic trade. This, alongside deals with India and the EU-UK reset, aims to safeguard the sector amidst global turbulence.

The focus now shifts to enhancing domestic competitiveness. With new Industrial and Trade Strategies published and potential support from the Comprehensive Spending Review, UK automotive companies can anticipate some optimism, encouraging global investment.

International markets are vital, with 80% of British-built vehicles exported monthly. However, a thriving domestic market also drives investment. The new car market in 2025 shows mixed results, up 3.5% year-on-year but still 17.9% below pre-COVID levels. The new van market faces weak business confidence, with declining demand throughout 2025.

Battery Electric Vehicles (BEVs) are growing, representing one in four new cars and one in 13 new vans registered in June. Despite this, growth is below government mandates, particularly for vans. Current growth is driven by unsustainable discounting, highlighting the challenge of maintaining momentum without harming businesses.

Meaningful fiscal purchase incentives and accelerated charging infrastructure rollout, including points suitable for Light Commercial Vehicles (LCVs), would boost confidence and demand. The SMMT suggests halving VAT on new EV purchases could put two million more EVs on the road by 2030, reducing CO₂ emissions by six million tonnes annually. Additionally, removing EVs from the VED Expensive Car supplement and equalising VAT on public charging with home rates would clearly signal that 2025 is the year to transition.

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