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Britain’s negotiators are racing to preserve the terms of the US-UK Economic Prosperity Deal after a Supreme Court ruling upended Washington’s tariff regime, triggering a rapid-fire escalation that threatens to raise levies on British exports to their highest level since the deal was struck last May.
From Supreme Court to Section 122: A Weekend of Tariff Chaos
The urgency of the UK’s position stems from a sequence of events that unfolded over four days. On February 20, the US Supreme Court ruled 6–3 in Learning Resources, Inc. v. Trump that the International Emergency Economic Powers Act does not authorize the president to impose tariffs, holding that the Constitution vests taxing power in Congress, not the executive branch. Within hours, Trump signed an executive order invoking Section 122 of the Trade Act of 1974, reimposing a 10% global tariff effective February 24. By the following day, he had raised the rate to the statutory maximum of 15%, declaring the levy “fully allowed and legally tested.”
For UK exporters, the arithmetic is uncomfortable. The May 2025 Economic Prosperity Deal had locked in a 10% baseline tariff on most British goods, with sector-specific carve-outs for cars — a quota of 100,000 vehicles at 10%, well below the 27.5% standard rate — and a commitment to negotiate lower duties on steel and aluminium, which remain at 25% under separate Section 232 authority untouched by the Court’s ruling. The new 15% Section 122 tariff stacks on top of existing duties, meaning the effective rate on covered British goods could rise by five percentage points unless London secures an explicit exemption. Treasury Secretary Scott Bessent has signalled that combining Section 122, Section 232 and Section 301 tariffs will result in “virtually unchanged tariff revenue,” suggesting little appetite for broad concessions.
A £329 Billion Relationship Under Strain
The bilateral relationship underpinning these talks is substantial. Total UK-US trade in goods and services reached £329.5 billion in the four quarters to Q3 2025, with British exports totalling £202.8 billion — roughly 17.5% of all UK trade. Services account for the lion’s share at £139.8 billion, led by financial and business services that remain outside the scope of goods tariffs. Goods exports, at £63.0 billion, declined 6.5% year-on-year through Q3 2025, a contraction the Office for National Statistics attributed partly to falling pharmaceutical and chemical shipments after tariffs were introduced in April.
The EPD itself was never a free trade agreement in the traditional sense. It is a non-binding framework comprising sector-specific concessions, mutual beef quotas of 13,000 metric tons — implemented from January 2026 — and commitments to further negotiations on pharma, digital trade and aerospace. A separate Technology and Prosperity Deal signed in September 2025 was suspended by Washington in December over stalled talks on non-tariff barriers, while a December 1 pharmaceutical pricing agreement exempted certain UK-origin medical products from Section 232 and potential Section 301 tariffs.
Business Leaders Push to ‘Double Down,’ Not Walk Away
William Bain, head of trade policy at the British Chambers of Commerce, has argued that the ruling should prompt intensified engagement rather than retreat. The EPD, he noted, was never primarily about the 10% baseline but about the carve-outs — the reduced auto levy, the promised steel tariff elimination, and the pharma exemptions — that give British industries competitive advantages over exporters without comparable deals. With the EU’s own trade agreement in limbo after the European Parliament postponed its ratification vote on February 24, London sees a narrow window to consolidate its position. The stakes are especially high for British steel producers navigating a fragile recovery, who remain exposed to the 25% Section 232 duties the EPD promised but has yet failed to eliminate.
Sterling Reflects the Uncertainty
GBP/USD traded at 1.3480 on Tuesday morning, slipping from Monday’s highs near 1.3507 after a brief dollar sell-off following the Supreme Court ruling. The pair remains in a corrective phase from its 1.3869 swing high, with the 200-day exponential moving average at 1.3371 as the nearest structural support. Sterling’s upside is capped by domestic headwinds: UK CPI eased to 3.0% in January, and the Bank of England’s February meeting produced a dovish 5–4 vote to hold rates, with markets pricing a cut as early as March. The deepening policy rift within the Federal Reserve adds another layer of complexity, as divergent rate paths between the Fed and the BoE could amplify cable volatility in the weeks ahead.
A 150-Day Clock and an Uncertain Legal Road
Section 122 tariffs are capped at 150 days, expiring July 24 unless Congress votes to extend them — unlikely, given that both chambers passed bills disapproving of the IEEPA tariffs. The administration has signalled it will launch new Section 232 national-security investigations across multiple industries to build a parallel tariff regime, but those proceedings typically take months. In the interim, UK negotiators will attempt to confirm that the EPD’s existing carve-outs survive the legal transition, and extract a concrete timeline for the long-promised steel tariff reduction. Whether Washington has the bandwidth to deliver either — while managing potential refund claims estimated between $100 billion and $175 billion — remains the central question confronting British trade policy.
