Volkswacht Bodensee - UK dreams of US trade deal before Trump tariffs

- Current position? -

Britain has set out to strike a trade deal with the United States since departing the European Union at the start of the decade, but had been unsuccessful under the previous Conservative government.

Prime Minister Keir Starmer, leader of the Labour party that won power in July, visited Washington at the end of February and came away hopeful an accord could be reached.

Trump himself held out the prospect of a "great" deal that could avoid tariffs on Britain, hailing Starmer as a tough negotiator.

Talks have continued, with Business Secretary Jonathan Reynolds recently visiting Washington, while Starmer and Trump took up the baton in a phone call earlier this week.

It is thought that the UK government wants to agree some kind of trade deal ahead of April 2 -- termed "Liberation Day" by Trump, when he is set to unveil supposedly "reciprocal" tariffs, tailored to different trading partners.

It would follow Trump's announcement this week of imposing steep tariffs on imported vehicles and auto parts, vowing retaliation as trade tensions intensify and price hikes appear on the horizon.

"We're engaged in discussions with the United States about mitigating the impact of tariffs," Starmer said heading into the weekend.

Finance minister Rachel Reeves on Thursday said Britain would not seek to "escalate" trade wars, in contrast to strong comments by other major economic powers that hinted at retaliation in response to the auto-sector tariffs.

- What kind of deal? -

Downing Street has described a potential agreement as an "economic prosperity deal", indicating it will fall short of a free trade deal ultimately sought by London.

As it stands, the United States is the UK's single largest country trading partner.

"Some type of arrangement that might let the UK escape some tariffs is possible but it would not be a full-scale trade deal," Jonathan Portes, professor of economics at King's College London, told AFP.

"Brexit is a double edged sword -- it gives us more flexibility and we can negotiate with a view to our own interests.

"But equally, it means we have less weight than as part of the EU and moreover we cannot afford to agree to anything that complicates our trading relationship with the EU," Portes added.

- What could the UK concede? -

UK media has reported that London may scrap a tax on tech giants to avert US tariffs under Trump and clear a pathway to a trade deal.

Starmer in response stressed that "in the end, our national interest has to come first, which means all options are on the table".

His spokesman added that the UK will "make sure that businesses pay their fair share of tax, including businesses in the digital sector".

The digital tax is currently worth about £800 million ($1 billion) annually to the UK Treasury.

Reynolds conceded that the digital tax is not "something that can never change or we can never have a conversation about".

Portes, along with David Henig, director of the UK Trade Policy Project, pointed to the risk of altering Britain's tax policy in return for a promise from Trump over tariff exemptions.

"If Trump keeps his word and the UK gains significant benefits as a result, then eliminating a tax could be a good deal," Henig told AFP.

"That, however, is quite a gamble."

R.Braegger--VB