Talks between the US and UK are ongoing, with the UK proposing to reduce tariffs on beef and fish. Currently, the UK is facing a range of tariffs, following the announcement of a 10% tariff on all imports from the UK, effective from April 5, 2025.
In addition to the general tariff, several sectors are subject to higher rates. The automobile and automotive parts sector will incur a 25% tariff, and steel and aluminium products are also facing a 25% tariff due to previous announcements made on February 10, 2025.
Negotiations on Service Based Industries
With formal backing from both trade ministries, negotiations have now extended into considerations about service-based industries, though the immediate focus remains rooted in goods. While meat products and seafood may draw headlines, there’s a broader concern among industries reliant on precise shipping schedules and thin margins. For exporters of mid-range steel components or niche automotive parts, the added cost structure from these tariffs will be felt unevenly but quickly. This adds a new dimension to forward pricing models, particularly in monthly and quarterly contract settlements.
It’s worth noting that both parties have kept the door open for “specific exemptions” based on industry need—though no exemptions have yet been granted. We interpret this as a signal that some relief may be forthcoming, probably targeted rather than general. Financial models should now start factoring in an adjusted probability for sector-based relief adjustments by Q3.
From a pricing perspective, the 25% levy on automotive exports will disturb inter-continental hedge strategies. Certain calendar spreads, especially those tracking component flows to the southern US, are already showing increased volatility. Johnson’s earlier remarks about recalibrating supply chains hint there may be further fragmentation across regional flows.
For futures traders, contract volume concentration may shift around high-exposure delivery periods. Weekly spreads in particular may widen more than usual, as short-term sentiment reacts to negotiation updates. The risk curves in steel and aluminium remain fairly steep, suggesting little belief in a short-term reversal. However, we observe that pricing further down the curve remains surprisingly flat—meaning markets haven’t fully decided where this will land.
Opportunity in Relative Value Strategies
It also presents an opportunity: tracking relative movements between UK-imported materials and domestic alternatives, especially in the Midwest and Southeastern US, gives an entry point for relative-value strategies. These are best executed on rolling quarterly bases, with particular attention on fluctuations in warehouse data and transit pressure at East Coast ports.
In predictive terms, the structured fallout for composite parts isn’t spread evenly. For instance, transition metrics already show elevated forward costs extending into 2026 for suppliers with less than 35% US-based finishing operations. Those watching blended freight costs will see another indicator here.
We’ve begun to see some larger funds shift their exposure from spot-linked derivatives into mid-term swaps. This reflects a push toward locking in known rates before further friction is priced in. It’s a strategy that’s grown steadily each time these tariffs have appeared in other jurisdictions.
The shift in tariff policy also leaves a behavioural footprint in option pricing. Implied volatilities have ticked higher, albeit unevenly, with steel options reflecting considerably more nervousness than finished car products. The reason is clear enough: steel is more exposed to cascading effects in input costs and logistics, whereas automotive exports sometimes benefit from capacity smoothing and inventory buffers.
Coordinating inputs with calendar spreads remains one of the more reliable strategies here, particularly if existing risk engines have integrated cross-market triggers aligned with government releases. Timing is key: several contract windows in late April and mid-June could become pressure points if concrete agreement fails to materialise before those dates roll around.
Where margin stress starts to emerge, expect it first in the mid-size producers—those with just enough international reach to feel the cost, not enough to diversify easily. For markets, that’s where bid-ask behaviour may start to stretch, and where liquidity can thin more rapidly than the wider pricing framework would suggest.
We are watching option skew adjust accordingly, with out-of-the-money puts acquiring extra premium coverage. It’s a tell-tale sign that traders anticipate late-stage movement, possibly driven by minor rule changes or last-minute tariff extensions.
