National Bank of Canada : Nothing artistic about this deal

Market View

Economics and Strategy

Nothing artistic about this deal By Taylor Schleich & Ethan Currie

At long last, the White House is starting to strike 'deals' that trade partners have apparently been clamoring for since Liberation Day. Thursday's agreement between the U.S. and the U.K. is the first we've seen but won't be the last as nations seek relief from the eye-popping tariffs imposed (and then paused) in early April. To be clear, this isn't a trade deal in the traditional sense as that would require congressional approval. Rather, this agreement simply rolls back or reduces some of the levies imposed in recent months. Moreover, this isn't the final form of the deal and there will be months of additional negotiation ahead. Nonetheless, it's progress. As such, markets looked favourably upon the announcement. However, as we look through the (limited) details of what was announced, we don't find ourselves basking in optimism.

For context, the U.K. is a relatively small fish in the U.S. trade pond. British goods are just ~2% of the total U.S. import basket. Within this relatively small amount, the agreement at this stage covers only ~30% of what Americans import. Steel and aluminum, autos, jet engines, pharmaceuticals and some agriculture products were the main items

Chart 1: The U.K. is not a top player in U.S. trade…

%

12.6

13.4

2.1

15.5

2024 total imports of USD$3.27

trillion

18.5

37.8

EU

Mexico Canada China UK

ROW

Total U.S. import shares by trading partner, 2024

May 9, 2025 - (Vol. IX, No. 35)

touched. Everything else remains subject to a 10% charge. Even within the goods covered, tariffs have not been universally lifted. Section 232 levies on steel and aluminum were removed but that was not the case for cars. The agreement allows for 100K autos to be subject to a reduced 10% rate as part of a tariff rate quota (TRQ). Imports above this threshold are subject to a 27.5% charge. Of course, lower tariffs are better than higher tariffs and it's notable that the 100K TRQ covers most, if not all British vehicles imports. Still, the "preferential" 10% duty is well above the ~2.5% rate that applied in past years.

Looking to deals with other nations, the U.K. agreement offers a reminder that material protectionism isn't going away. Tariffs may be negotiated down but not away entirely. The TRQ on autos is particularly relevant for a country like Canada where a significantly larger quota would be needed. From a U.S. inflation perspective, this single deal does little to ease inflation concerns as it barely dents the U.S.'s effective tariff rate. Here, tariffs on China are most critical, so we'll be watching this weekend's meetings closely.

Chart 2: … and recent tariff carveouts are limited in scope

U.K. exports to the U.S. by product category, since 2020

$bln

Steel & Aluminum Pharma

Other

Jet Engines

Autos

80

70

60

50

40

30

20

10

0

Source: NBC, U.S. Census | Note: 'ROW' refers to 'rest of world' trading partners

Chart 3: Larger TRQs would be needed for Canada, others

U.S. imports of new passenger vehicles and light trucks by trading partner, volume

000s

3,500

3,000

2,500

2,000

1,500

1,000

500

2020 2021 2022 2023 2024 2025

Source: NBC, U.S. Census | Note: 2025 is YTD through March, uses HS2 codes

%

Chart 4: China relief required for significant damage control Contributions to the U.S. average effective tariff rate by geography and product 30

25

20

15

10

5

2024 Base

China

Global 10%

EU

Can / Mex

UK

Autos

Steel / Alum.

Electronics

AETR

0

0

Mexico Korea Japan Canada Germany China U.K.

Source: NBC, U.S. International Trade Administration Source: NBC, U.S. Census | Note: 'AETR' refers to U.S. 'average effective tariff rate'

Disclosures

Subscribe to our publications: [e-mail] - To contact us: 514-879-2529

General

This Report was prepared by National Bank Financial, Inc. (NBF), (a Canadian investment dealer, member of CIRO), an indirect wholly owned subsidiary of National Bank of Canada. National Bank of Canada is a public company listed on the Toronto Stock Exchange.

The particulars contained herein were obtained from sources which we believe to be reliable but are not guaranteed by us and may be incomplete and may be subject to change without notice. The information is current as of the date of this document. Neither the author nor NBF assumes any obligation to update the information or advise on further developments relating to the topics or securities discussed. The opinions expressed are based upon the author(s) analysis and interpretation of these particulars and are not to be construed as a solicitation or offer to buy or sell the securities mentioned herein, and nothing in this Report constitutes a representation that any investment strategy or recommendation contained herein is suitable or appropriate to a recipient's individual circumstances. In all cases, investors should conduct their own investigation and analysis of such information before taking or omitting to take any action in relation to securities or markets that are analyzed in this Report. The Report alone is not intended to form the basis for an investment decision, or to replace any due diligence or analytical work required by you in making an investment decision.

This Report is for distribution only under such circumstances as may be permitted by applicable law. This Report is not directed at you if NBF or any affiliate distributing this Report is prohibited or restricted by any legislation or regulation in any jurisdiction from making it available to you. You should satisfy yourself before reading it that NBF is permitted to provide this Report to you under relevant legislation and regulations.

National Bank of Canada Financial Markets is a trade name used by National Bank Financial and National Bank of Canada Financial Inc.

Canadian Residents

NBF or its affiliates may engage in any trading strategies described herein for their own account or on a discretionary basis on behalf of certain clients and as market conditions change, may amend or change investment strategy including full and complete divestment. The trading interests of NBF and its affiliates may also be contrary to any opinions expressed in this Report.

NBF or its affiliates often act as financial advisor, agent or underwriter for certain issuers mentioned herein and may receive remuneration for its services. As well NBF and its affiliates and/or their officers, directors, representatives, associates, may have a position in the securities mentioned herein and may make purchases and/or sales of these securities from time to time in the open market or otherwise. NBF and its affiliates may make a market in securities mentioned in this Report. This Report may not be independent of the proprietary interests of NBF and its affiliates.

This Report is not considered a research product under Canadian law and regulation, and consequently is not governed by Canadian rules applicable to the publication and distribution of research Reports, including relevant restrictions or disclosures required to be included in research Reports.

UK Residents

This Report is a marketing document. This Report has not been prepared in accordance with EU legal requirements designed to promote the independence of investment research and it is not subject to any prohibition on dealing ahead of the dissemination of investment research. In respect of the distribution of this Report to UK residents, NBF has approved the contents (including, where necessary, for the purposes of Section 21(1) of the Financial Services and Markets Act 2000). This Report is for information purposes only and does not constitute a personal recommendation, or investment, legal or tax advice. NBF and/or its parent and/or any companies within or affiliates of the National Bank of Canada group and/or any of their directors, officers and employees may have or may have had interests or long or short positions in, and may at any time make purchases and/or sales as principal or agent, or may act or may have acted as market maker in the relevant investments or related investments discussed in this Report, or may act or have acted as investment and/or commercial banker with respect hereto. The value of investments, and the income derived from them, can go down as well as up and you may not get back the amount invested. Past performance is not a guide to future performance. If an investment is denominated in a foreign currency, rates of exchange may have an adverse effect on the value of the investment. Investments which are illiquid may be difficult to sell or realise; it may also be difficult to obtain reliable information about their value or the extent of the risks to which they are exposed. Certain transactions, including those involving futures, swaps, and other derivatives, give rise to substantial risk and are not suitable for all investors. The investments contained in this Report are not available to retail customers and this Report is not for distribution to retail clients (within the meaning of the rules of the Financial Conduct Authority). Persons who are retail clients should not act or rely upon the information in this Report. This Report does not constitute or form part of any offer for sale or subscription of or solicitation of any offer to buy or subscribe for the securities described herein nor shall it or any part of it form the basis of or be relied on in connection with any contract or commitment whatsoever.

This information is only for distribution to Eligible Counterparties and Professional Clients in the United Kingdom within the meaning of the rules of the Financial Conduct Authority. NBF is authorised and regulated by the Financial Conduct Authority and has its registered office at 70 St. Mary Axe, London, EC3A 8BE.

NBF is not authorised by the Prudential Regulation Authority and the Financial Conduct Authority to accept deposits in the United Kingdom.

EU Residents

With respect to the distribution of this report in the member states of the European Union ("EU") and the European Economic Area ("EEA") by NBC Paris, the contents of this report are for information purposes only and do not constitute investment advice, investment research, financial analysis or other forms of general recommendation relating to transactions in financial instruments within the meaning of Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 ("MiFID 2"). This report is intended only for professional investors and eligible counterparties within the meaning of MiFID 2 and its contents have not been reviewed or approved by any EU/EEA authority. NBC Paris is an investment firm authorised by the French Prudential Control and Resolution Authority ("ACPR") to provide investment services in France and has passported its investment services throughout the EU/EEA under the freedom to provide services and has its registered office at 8 avenue Percier, 75008 Paris, France. "NBC Financial Markets, a subsidiary of National Bank of Canada" is a trade name used by NBC Paris S.A.

NBF is not authorised to provide investment services in the EU/EEA.

U.S. Residents

With respect to the distribution of this report in the United States of America, National Bank of Canada Financial Inc. ("NBCFI") which is regulated by the Financial Industry Regulatory Authority (FINRA) and a member of the Securities Investor Protection Corporation (SIPC), an affiliate of NBF, accepts responsibility for its contents, subject to any terms set out above. To make further inquiry related to this report, or to effect any transaction, United States residents should contact their NBCFI registered representative.

This report is not a research report and is intended for Major U.S. Institutional Investors only. This report is not subject to U.S. independence and disclosure standards applicable to research reports.

HK Residents

With respect to the distribution of this report in Hong Kong by NBC Financial Markets Asia Limited ("NBCFMA") which is licensed by the Securities and Futures Commission ("SFC") to conduct Type 1 (dealing in securities) and Type 3 (leveraged foreign exchange trading) regulated activities, the contents of this report are solely for informational purposes. It has not been approved by, reviewed by, verified by or filed with any regulator in Hong Kong. Nothing herein is a recommendation, advice, offer or solicitation to buy or sell a product or service, nor an official confirmation of any transaction. None of the products issuers, NBCFMA or its affiliates or other persons or entities named herein are obliged to notify you of changes to any information and none of the foregoing assume any loss suffered by you in reliance of such information.

The content of this report may contain information about investment products which are not authorized by SFC for offering to the public in Hong Kong and such information will only be available to, those persons who are Professional Investors (as defined in the Securities and Futures Ordinance of Hong Kong ("SFO")). If you are in any doubt as to your status you should consult a financial adviser or contact us. This material is not meant to be marketing materials and is not intended for public distribution. Please note that neither this material nor the product referred to is authorized for sale by SFC. Please refer to product prospectus for full details.

There may be conflicts of interest relating to NBCFMA or its affiliates' businesses. These activities and interests include potential multiple advisory, transactional and financial and other interests in securities and instruments that may be purchased or sold by NBCFMA or its affiliates, or in other investment vehicles which are managed by NBCFMA or its affiliates that may purchase or sell such securities and instruments.

No other entity within the National Bank of Canada group, including National Bank of Canada and National Bank Financial Inc, is licensed or registered with the SFC. Accordingly, such entities and their employees are not permitted and do not intend to: (i) carry on a business in any regulated activity in Hong Kong; (ii) hold themselves out as carrying on a business in any regulated activity in Hong Kong; or (iii) actively market their services to the Hong Kong public.

Copyright

This Report may not be reproduced in whole or in part, or further distributed or published or referred to in any manner whatsoever, nor may the information, opinions or conclusions contained in it be referred to without in each case the prior express written consent of NBF.