America’s love affair with posh British cars is under threat despite trade deal

Americans have long been drawn to posh British car brands such as Rolls-Royce and Bentley, which in turn have come to rely on U.S. buyers. Now that special relationship is coming under strain.

Last week’s U.S.-U.K. trade pact spared the British auto industry from the worst of President Trump’s sweeping tariffs while casting doubt over its prospects in a key growth market.

Second only to U.S. output in the 1950s, British car production peaked in the early 1970s. Since then, the industry has gone through more downs than ups, largely fallen into foreign hands and become a symbol of the country’s industrial decline.

It has, however, found some success in a niche business: making luxury vehicles for the global elite, including lots of Americans. The U.S. is the largest single market for companies such as Aston Martin, Bentley and Jaguar Land Rover, which makes Range Rovers.

British Prime Minister Keir Starmer at a Range Rover plant in England last week.

Despite last week’s deal, this business is now threatened, showing how even industries singled out for favorable treatment by the White House face higher trade barriers than they did two months ago.

The new 10% tariff on British cars, while far below the previous 27.5% rate, is still four times its level before President Trump launched auto tariffs on April 3. Moreover, it will apply only to 100,000 vehicles a year, with the rest incurring a 25% levy.

The new policy undermines what had been one of the U.K. car industry’s best hopes for recovering its prepandemic mojo. With Chinese consumers increasingly embracing local brands and faltering growth in Europe, the region’s luxury carmakers saw the robust U.S. economy as their most promising growth opportunity.

Last year Britain shipped roughly 96,000 cars stateside, according to the U.S. International Trade Administration, 31% more than in 2023 but less than half the 2019 level—and only just below the new cap on lower-tariff shipments.

On a visit to the main Range Rover factory to announce last week’s trade agreement, British Prime Minister Keir Starmer told workers there was scope to increase the quota. But this would likely face pushback from Detroit, which criticized Trump’s deal with the U.K.

In the short term, the flexibility of the cap may be moot as the higher tariff is likely to push up prices, reducing demand, said Andy Palmer, a consultant who previously ran Aston Martin.

JLR, owned by India’s Tata Motors, is particularly exposed to the new trade conditions. It sent roughly 85,000 vehicles from Britain to the U.S. in the year through March.

A Land Rover dealership in Houston.

Range Rovers compete with Mercedes-Benz and BMW luxury sport-utility vehicles that are built in the U.S. This makes it harder for JLR to recoup the cost of tariffs by raising prices.

“It’s a little bit of a wait and see strategy over the next few weeks," said JLR Chief Executive Adrian Mardell when asked this week about the company’s approach to mitigating tariffs.

JLR doesn’t sell enough to localize production in the U.S., as its larger German peers have since the 1990s. Mardell said the company had “no plans" to build products in America.

Other British car brands—such as sports-car makers Aston Martin and McLaren, and old-money marques like Rolls-Royce and Bentley—are smaller and more expensive, putting them in a stronger position to recoup the additional tariff cost from their wealthier customers.

The British Leyland Jaguar plant in Coventry, England, in the early 1970s, when British car production peaked.

“At the ultraluxury end of the market, there isn’t really an American competitor. It’s European brands competing against themselves," said Andrew Bergbaum, a consultant at AlixPartners.

But analysts still expect higher prices to damp demand. Smaller players could also suffer disproportionately from the quota if JLR front-loads deliveries to the U.S. early in the year, using up the allocation.

The U.S. challenge comes at a tough time for the British auto industry, which already was struggling to manage tepid demand and the shift to electric vehicles.

As car manufacturers retool factories and adjust to market realities, production has fallen toward 70-year lows. Last year Britain made roughly 780,000 cars, close to the 2022 nadir, when the industry globally was short of semiconductors.

This year could be even worse. An independent study for the Society of Motor Manufacturers and Traders, the industry’s U.K. trade body, forecast that light-vehicle production in the country would fall almost 8% in 2025 before stabilizing in 2026—and that was before Trump started shaking up global trade.

One contributor to the decline: Jaguar, the British racing-car brand also owned by JLR, has stopped production of most models to get ready for electric vehicles. In December, it held an event in Miami to relaunch the brand, highlighting the importance it attaches to the U.S. market. Mini, the small-car brand now owned by BMW, also produced 40% fewer vehicles last year.

Britain’s prominence in the global car industry after World War II was soon eclipsed by the rise of West Germany, followed by new Asian rivals. Brexit and the pandemic took the wind out of a revival in the 2010s. Last year Britain ranked 19th for light-vehicle production, according to data from the International Organization of Motor Vehicle Manufacturers.

Still, the industry remains important for Britain as a generator of high-value jobs and exports. Production last year was split roughly equally between Nissan and Toyota, which use the country to mass-produce for the European market, and the surviving British luxury brands that export globally.

Catering to the jet set isn’t a certain recipe for financial success, particularly without the help of global automotive groups. Rolls-Royce and Bentley are solidly profitable as subsidiaries of Germany’s BMW and Volkswagen, respectively. But McLaren and Aston Martin have required regular cash infusions.

JLR this week reported profit before tax of £2.5 billion for the year through March, equivalent to $3.3 billion, its best result in a decade. But this year is set to be tougher for the industry.

“The reality is that a 10% tariff significantly raises costs compared with last year, creating considerable headwinds," said Palmer.

Write to Stephen Wilmot at stephen.wilmot@wsj.com