Rolls-Royce shares soared on Thursday, May 8, 2025, following a significant US-UK trade deal that exempted the aerospace giant's engines and parts from tariffs. The announcement came from US Commerce Secretary Howard Lutnick, who confirmed that Rolls-Royce products would be included in the agreement, leading to a 4% increase in the company's stock price. This development is seen as a major boost for the UK-based manufacturer, which has been navigating the turbulent waters of international trade.
Details of the deal indicate that the UK will purchase $10 billion worth of Boeing planes in exchange for the tariff exemptions on Rolls-Royce engines. Lutnick stated, "We’ve agreed to let Rolls-Royce engines and those kinds of plane parts come over tariff-free," emphasizing the importance of this arrangement for both countries. The UK Prime Minister, Sir Keir Starmer, hailed the trade deal as "historic," asserting that it would save thousands of jobs in the automotive and steel industries that had been threatened by previous tariffs imposed by former President Donald Trump.
As part of the agreement, the UK will be able to export 100,000 cars to the US at a reduced tariff rate of 10%, down from the previous 27.5%. However, all other car exports will still face the higher tariff. Additionally, the 25% tariff on steel exports to the US has been removed, marking a significant relief for British manufacturers. Starmer described the deal as a "fantastic platform" for enhancing trade and job creation between the two nations.
Investment analysts have noted that Rolls-Royce's exemption from tariffs on aircraft engines shipped to Boeing is a clear indication of the preferential treatment the company received as part of this trade agreement. Dan Coatsworth, an analyst at AJ Bell, remarked, "Rolls-Royce was a big winner from the trade deal as it won’t be subject to tariffs on aircraft engines shipped to Boeing in the US." The favorable terms have led to an immediate positive response from investors, with shares closing at 783.46p, a level not seen since before Trump's tariffs were implemented.
However, the deal is not without its complexities. While the exemption on Rolls-Royce engines is a significant win, concerns remain about the overall trade landscape. Lucy Granger, head of international trade at the East Midlands Chamber, cautioned that while the agreement is a step forward, there are still unresolved issues regarding tariffs on pharmaceuticals, agriculture, and other sectors. She stated, "After such a protracted time of uncertainty, businesses will welcome this step forward to ensure smooth trading with the US. However, we need more clarity on pharmaceuticals, agriculture, and other sectors. Political leaders must continue to negotiate and improve the deal.”
In another notable aspect of the trade deal, beef exports between the US and UK will be allowed both ways, with assurances that food standards will not be compromised. The agreement also includes the removal of tariffs on US ethanol entering the UK, although this has raised some eyebrows among industry experts. The British Beer and Pubs Association expressed confusion over claims made by the UK government suggesting that reduced ethanol tariffs would lower beer prices, clarifying that ethanol is not used in beer production.
Further complicating matters, it was revealed that Rolls-Royce has recently discontinued its support for LGBTQ+ and other diversity groups within the company, a decision attributed to pressure from the US government. Reports indicate that Rolls-Royce informed staff it would no longer fund employee inclusion networks, such as its LGBTQ+ network, in compliance with anti-diversity legislation introduced during Trump's administration. Instead, the company is launching a new "employee voice network" that is accessible to all employees, which has raised concerns among advocates for diversity and inclusion.
Despite the challenges, the trade deal has been met with optimism in the automotive sector. Aston Martin, another major player in the UK market, saw its shares rise by over 10% following the announcement, reflecting the positive sentiment surrounding the new trade arrangements. The luxury carmaker, which derives a significant portion of its revenue from the US market, had previously warned investors about the potential impact of tariffs on its export operations.
The broader implications of the trade deal extend beyond just Rolls-Royce and Aston Martin. British engineering firms, including Melrose, IMI, and Weir, have also shown gains, buoyed by the promise of reduced tariffs and increased access to US markets. The agreement aims to foster a technology partnership between the UK and US in the aerospace sector, further enhancing collaboration between the two nations.
As the final details of the trade deal are being finalized, the UK government is under pressure to ensure that the benefits of the agreement extend to other sectors as well. The Society of Motor Manufacturers and Traders reported that the UK exported approximately 102,000 cars to the US in 2024, highlighting the importance of the automotive industry in the trade relationship. Mike Hawes, the society’s chief executive, welcomed the tariff cuts but emphasized the need for a more comprehensive deal to eliminate trade barriers.
In summary, the US-UK trade deal announced on May 8, 2025, represents a significant shift in the economic landscape for British manufacturers, particularly for Rolls-Royce and the automotive sector. While the exemption from tariffs on engines and the reduction of car export tariffs are promising developments, ongoing negotiations will be crucial to address remaining uncertainties and ensure that the benefits of the deal are fully realized across all industries. The coming weeks will be pivotal as the final details are ironed out, and businesses brace for the next steps in this evolving trade relationship.
