Key Takeaways:
- The US has paused its £31bn "tech prosperity deal" with the UK due to trade disagreements
- The deal included investments from Microsoft and Google, as well as the creation of an artificial intelligence "growth zone" in the north-east of England
- The US is unhappy with the UK’s digital services tax, online safety rules, and food safety regime
- The UK government is standing firm on its policies, despite US pressure to make changes
- The pause in the deal is a setback for US-UK relations, which had been touted as a "special relationship"
Introduction to the Tech Prosperity Deal
The US has put its promised £31bn investment in British tech on hold due to trade disagreements, marking a significant setback in US-UK relations. The "tech prosperity deal", announced during Donald Trump’s state visit, was hailed as a "generational stepchange" in the relationship between the two countries. However, Washington has paused the implementation of the agreement, citing a lack of progress from the UK in lowering trade barriers in other areas. The deal included a £22bn investment from Microsoft and £5bn from Google, as well as the creation of an artificial intelligence "growth zone" in the north-east of England, which could bring in up to £30bn and create 5,000 jobs.
Trade Disagreements and Negotiations
The US is unhappy with the UK’s digital services tax, which levies a 2% charge on the revenues of tech companies including Amazon, Google, and Apple. The tax raises around £800m a year, and the US has repeatedly threatened to retaliate against countries with digital taxes. The UK government has resisted US pressure to scrap or amend the tax, despite proposals to reduce the amount paid by US tech companies and apply the tax to a wider range of companies. The US has also exerted pressure over the UK’s online safety rules and food safety regime, with ministers admitting that the US has raised objections to the latter. The UK has stood by its manifesto commitment not to water down farming standards, which could open the door to American chlorine-washed chicken or hormone-treated beef being sold in Britain.
Government Response and Negotiations
British officials have sought to downplay the development, describing it as "the usual bit of hardball negotiations by the Americans". A UK government source said that the deal to allow tariff-free British pharmaceutical exports to the US was on and off before it was finalized, and that the US commerce secretary, Howard Lutnick, is a "tough guy" who negotiates hard. The source added that the UK will stand its ground and prioritize its own interests. The business and trade secretary, Peter Kyle, was in the US last week for negotiations with Lutnick, the US trade representative, Jamieson Greer, and the US treasury secretary, Scott Bessent. Their discussions touched on whisky and steel tariffs and collaboration on critical minerals, with talks due to continue in January.
Impact on US-UK Relations
The pause in the tech prosperity deal is a blow to the UK government, which had touted the agreement as a prize of its intensive year-long engagement with the US to avoid punitive tariffs on British exports. The decision is also a setback for US-UK relations, which had been described as a "special relationship". The UK government has sought to reassure that the relationship remains strong, with a spokesperson saying that the UK is "firmly committed to ensuring the tech prosperity deal delivers opportunity for hard-working people in both countries". However, the development has raised concerns about the future of the relationship and the ability of the two countries to work together on key issues.
Conclusion and Future Prospects
The pause in the tech prosperity deal is a significant setback for US-UK relations, and highlights the challenges of negotiating trade agreements between two countries with different priorities and policies. The UK government will need to navigate these challenges carefully in order to secure a favorable deal that benefits both countries. With talks due to continue in January, it remains to be seen whether the two countries can reach a mutually beneficial agreement. The UK government’s commitment to its digital services tax, online safety rules, and food safety regime will be tested, and the outcome will have significant implications for the future of the US-UK relationship.
