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Jonathan Reynolds, UK trade secretary, will on Tuesday attempt to fend off the threat of swingeing US tariffs, but Britain’s digital services tax remains a major source on contention with the Trump administration.
Reynolds will hold talks in Washington to try to win an exemption for Britain from Donald Trump’s global “reciprocal” tariffs, due in early April, while talks on a new UK/US economic deal are under way.
But the US president has argued that the digital services tax levied by Britain — along with the EU and other countries — is a levy aimed squarely at US tech giants and which should be met with tough tariffs.
“There’s no suggestion of us making any changes to the digital services tax,” said a British official, referring to the levy introduced in Britain in 2020 and which is forecast to raise £800mn in 2024-25.
Some British officials are hopeful that Reynolds can persuade his US counterparts to give the UK special treatment, not least because the two countries have a roughly balanced trade relationship.
He will meet US commerce secretary Howard Lutnick and US trade representative Jamieson Greer and will argue that the transatlantic commercial relationship had “benefited both sides for many decades”.
Reynolds said: “Today’s visit to Washington DC is the latest step in our pragmatic and positive engagement with the new administration to agree a wider economic deal in both our interests.”
British officials say an economic deal, focused on closer co-operation in technology and artificial intelligence, would provide the basis for a “tech partnership” between the two sides.
One said: “The way is paved for a quick agreement on tariffs and a longer term tech partnership. The US side is demanding but they also want to demonstrate that allies can negotiate with them, that deals are possible.”
Sir Keir Starmer’s government did not retaliate with reciprocal measures when the US imposed a 25 per cent global tariff on steel and aluminium imports, a measure which added £100mn to the costs of UK steel exports.
Reynolds will hope that what Starmer called a “cool headed response” will win him some credit in Washington. The EU immediately responded to the US levies with counter tariffs on totemic US products such as bourbon, motorcycles and jeans.
People familiar with the US administration’s talks with the UK so far have said Britain’s digital tax is the main trade issue being cited as an irritant, as the Trump administration works on calculating the rate of its “reciprocal” tariffs on major trading partners.
Britain introduced its digital services tax in April 2020, a 2 per cent levy on the revenues of search engines, social media platforms and online marketplaces which derive value from UK users.
The tax was introduced in a bid to address concerns that big tech companies were declaring low profits in the UK by shifting their profits made in the UK to other countries with lower tax rates.
Under the last Trump administration, the US threatened to impose tariffs on the UK and a string of other countries to retaliate for their taxes on tech companies, which it said unfairly targeted US companies.
In late February, Trump signed an executive order instructing Greer to reopen probes aimed at imposing tariffs on several countries that levy DST on US platforms, including the UK, Canada, and France.
