In a stinging setback for Prime Minister Keir Starmer, a long-anticipated deal to eliminate US tariffs on British steel and aluminium has been abruptly shelved just hours before US President Donald Trump’s state visit to the UK, according to government sources. The collapse of the agreement, which would have reduced tariffs from 25% to zero, has left UK ministers scrambling and the steel industry reeling from the unexpected blow.

The deal, initially heralded as a breakthrough in UK-US trade relations, was set to be finalised this week. It promised to secure tariff-free access for a limited quota of British steel exports to the US, a move that would have bolstered the UK’s steel industry. However, US concerns over the UK potentially acting as a conduit for cheap steel imports from other countries have derailed the agreement, leaving Starmer’s government facing embarrassment on the eve of Trump’s arrival, The Guardian reported.

A Government source revealed that the shelved deal would have provided zero tariffs on a small quota of steel exports, but unresolved issues regarding the origin of Britain’s raw material imports prompted the US to halt negotiations. Instead, ministers are now pushing for a permanent “guarantee” that US tariffs on British steel will not exceed 25%, a rate significantly lower than the 50% imposed on other countries. While this offers some relief, it falls far short of the tariff-free access the UK had hoped to secure.

The timing of the decision is particularly humiliating for Starmer, who had hoped to showcase a strengthened UK-US partnership during Trump’s visit. Speaking before his flight to London, Trump teased the possibility of a “better deal” for the UK, raising expectations that a resolution was imminent. However, the abrupt shelving of the agreement has cast a shadow over the visit, with steel industry figures describing it as a “major blow.”

One steel industry executivem speaking anonymously, said: “It’s disappointing – perhaps not 100% surprising.

“Some products might not be possible to sell to the US. Others we can pass it on. It could be worse.”

Another industry insider expressed relief that the UK retains a competitive edge over EU exporters, who face prohibitive 50% tariffs, but the sentiment within the sector remains one of frustration.

Gareth Stace, director general of UK Steel, acknowledged the setback but noted that a fixed 25% tariff could provide “a degree of certainty and potentially a competitive advantage” if other nations remain subject to higher rates.

Nevertheless, the failure to secure tariff-free exports has prolonged uncertainty for an industry already grappling with global market challenges.

A Government spokesperson said: “Thanks to the strength of the UK-US partnership, we are still the only country to benefit from a 25% tariff on steel exports to the US, reinforcing our position as a trusted source of high-quality steel.

“We are continuing to work closely with the US to deliver certainty for UK industry, protect skilled jobs and support economic growth as part of our Plan for Change.”