The impact of the deadlock in US UK steel and aluminum tariff negotiations on the global supply chain

Recently, the US plan to increase the import tariffs on British steel from 25% to 50% was scheduled to take effect today, but the UK and the US remained deadlocked in negotiations at the last minute. This game around steel and aluminum tariffs is not only a struggle for economic interests between the two countries, but may also become a trigger for global supply chain turbulence. If the negotiations break down, the chain reaction will far exceed the tariff figures themselves, reshaping the global trade landscape.

The escalation of US steel and aluminum tariffs on the UK is essentially a continuation of the Trump administration's "America First" policy. Since March 2025, the United States has raised global steel and aluminum tariffs from 25% to 50%, with only the United Kingdom temporarily exempted due to the agreement reached in March 2025. However, the accusation of "dumping" British products by the domestic steel industry in the United States has become a direct driving force for tariff escalation. According to data from the American Iron and Steel Institute, UK steel exports to the US increased by 18% year-on-year in the first quarter of 2025, with some US companies accusing UK companies of using tariff exemptions to "seize the market".

The UK is using the "Economic Prosperity Agreement" as a bargaining chip to try to maintain zero tariff treatment. The agreement covers key areas such as digital trade and data flow. If tariffs break down, the 1.2 million tons of steel and aluminum products exported by the UK to the US each year will face a surge in costs and may trigger retaliatory tariffs on US goods such as cars and whiskey. The UK Department for Business and Trade has warned that tariff escalation will result in over 12000 layoffs in the UK steel industry and drag down the country's GDP growth by 0.3 percentage points.

If the negotiations break down, the global steel and aluminum market will fall into a triple crisis. The Global Steel Price Index (CRU) shows that the average price of hot-rolled coils in May 2025 has increased by 12% compared to the beginning of the year. If the US tariffs on the UK take effect, global steel prices may rise by another 8% -10%. British steel companies will be forced to turn to the EU and Middle East markets, leading to regional oversupply and price wars. Downstream industries such as automobiles and construction will face cost pressures. Taking Tesla as an example, its US factories use 15% of high-strength steel produced in the UK, and tariff escalation will result in an increase of approximately $400 in bike costs. To mitigate risks, multinational corporations may accelerate the localization or outsourcing of their supply chains, such as Ford Motor Company announcing the relocation of some North American production lines to Mexico. The European Union has imposed tariffs on 26 billion euros worth of goods from the United States. If the UK joins the countermeasure camp, the United States may further escalate tariffs, even affecting areas such as chips and agricultural products. Major steel exporting countries such as Canada and Brazil may also follow the example of the European Union, triggering a global wave of trade protectionism.

Despite the tense situation, there is still room for negotiation between the UK and the US. Firstly, quota system replaces comprehensive tariffs. Referring to the 2021 US European Steel and Aluminum Agreement, the UK may accept an annual import quota (such as a zero tariff quota of 500000 tons) in exchange for the US temporarily suspending tariff escalation. Secondly, compromise on technical terms. The UK can promise to strengthen the certification of origin for steel products to avoid the evasion of "Chinese steel being transported through the UK to the US", while the US can relax tariff exemptions for high-end specialty steel from the UK. Thirdly, economic agreements are bundled together. The UK may offer long-term exemptions from steel and aluminum tariffs in exchange for opening up its market to the US in areas such as artificial intelligence and green energy. For example, the UK has proposed to jointly build the "Transatlantic Clean Steel Alliance" with the United States to restrict high emission steel imports through a carbon tariff mechanism.

The US UK steel and aluminum tariff dispute reflects the deep-seated contradictions in the global trading system. On the one hand, the stagnation of WTO reform has led to the prevalence of unilateralism, and the United States has bypassed multilateral mechanisms under the pretext of "national security", exacerbating the fragmentation of rules; On the other hand, the global steel overcapacity (the global capacity utilization rate will be only 72% in 2025) is intertwined with the geopolitical conflict (the Russia-Ukraine conflict leads to the restructuring of the European steel supply chain), which makes the trade friction more complex.

If negotiations break down, the global steel and aluminum market may fall into a "prisoner's dilemma": countries compete to impose tariffs to protect their domestic industries, ultimately leading to a "lose lose" situation. The International Monetary Fund (IMF) predicts that if global trade protectionism escalates, the global GDP growth rate will decrease by 1.2 percentage points in 2026, with manufacturing countries being the hardest hit.

The deadlock in the US UK steel and aluminum tariff negotiations is a microcosm of the global backlash. For enterprises, it is necessary to accelerate the diversification of supply chain layout and reduce dependence on a single market; For policy makers, they need to find a delicate balance between protectionism and free trade. As the Financial Times has stated, "Behind the numbers of steel and aluminum tariffs is the touchstone of global economic governance." In this game, there is no absolute winner, only through dialogue and cooperation can we avoid the "butterfly effect" of the supply chain from evolving into a hurricane of the global economy.