In April, Donald Trump surprised the international community with the announcement of expansive new import tariffs, a move largely suspended following widespread financial unease.
Now, several months later, the US president is emphasizing a series of perceived successes, having finalized agreements with various trading partners and implemented tariffs on others, without the widespread financial market disruptions seen in the spring.
At least, for the moment.
Having endeavored to reshape America’s position within the global economy, Trump now suggests the US will benefit from new revenues, a revitalized domestic manufacturing sector, and significant foreign investment and procurement.
The realization of these projections—and the potential for adverse consequences—remains uncertain.
What is evident, however, is that a trend toward reevaluating free trade, already underway prior to Trump’s second term, has intensified into a global phenomenon. While this shift is reshaping the economic terrain, it has not yet produced the degree of economic calamity some anticipated, though the full impact may take time to manifest.
Furthermore, these developments have prompted many nations to reassess their strategic alliances.
Thus, while the immediate outcome may be viewed by Trump as a triumph, the overall implications for his broader objectives are less clear. The long-term repercussions could differ considerably, impacting Trump’s legacy—or the America he leaves behind following his current administration.
For various reasons, August 1st had been marked as a critical date by international policymakers, who were warned to agree to new trade terms with the US by then—or face potentially damaging tariffs.
While White House trade advisor Peter Navarro predicted “90 deals in 90 days,” and Trump expressed optimism about reaching agreements, the timeline appeared ambitious, and ultimately proved to be so.
By the end of July, Trump had announced only a limited number of trade deals, some of which were brief and lacked the detailed provisions typical of past negotiations.
The UK was among the first to reach an agreement, which was perhaps inevitable. Trump’s primary concern is the US trade deficit, and trade with the UK is generally balanced.
While the initial 10% tariff on most British goods may have caused some concern, it offered a preview of what was to come and was ultimately less than the 15% rate applied to trading partners with larger deficits, such as the EU and Japan, which totaled $240 billion and $70 billion respectively last year.
Even these agreements included conditions. Countries that could not commit to purchasing more American goods, for example, often faced higher tariffs.
As the list grew—South Korea, Cambodia, Pakistan—and tariff letters were dispatched, a significant portion of American imports became subject to either an agreement or a presidential decree, often concluded with a brief “thank you for your attention to this matter.”
These developments have revealed several key points.
First, the recent negotiations have averted the most severe tariffs and associated recession warnings.
The most dire predictions—regarding tariff levels and potential economic repercussions for the US and other nations—have not materialized.
Second, the establishment of tariff terms, however unfavorable, reduced some of the uncertainty, which Trump has employed as a significant economic tool, for both better and worse.
For the better, businesses can now make plans, and previously suspended investment and hiring decisions may resume.
Most exporters now know the tariff rates on their goods and can determine how to manage or transfer the costs to consumers.
This increased certainty has contributed to a more positive sentiment in financial markets, with US shares showing notable gains.
However, it is also for the worse, as the average tariff for selling into the US is now higher than before and more extreme than analysts predicted just six months ago.
While Trump has touted the US agreement with the EU, these are not the tariff-reducing deals that characterized the removal of trade barriers in past decades.
The greatest fears and warnings of potential disaster have subsided. However, Ben May, Director of global macro forecasting at Oxford Economics, suggests that US tariffs could “damage” the global economy in several ways.
“They are obviously raising prices in the US and squeezing household incomes,” he says, adding that the policies would also reduce demand worldwide if the US imports fewer goods.
The impact is influenced not only by the tariff rate but also by the scale of the trading relationship with the US. For example, while India may face tariffs of over 25% on its exports to the US, economists at Capital Economics estimate that, with US demand representing only 2% of India’s gross domestic product, the immediate impact on growth may be limited.
The outlook is less favorable for Germany, where the 15% tariffs could reduce growth by more than half a percentage point this year compared to earlier expectations.
This is particularly problematic for Germany’s automotive sector, which is significant for an economy that may be nearing recession.
Meanwhile, in recent months, India has become the top source of smartphones sold in the US, as concerns about potential actions against China prompted Apple to shift production.
Conversely, India will be aware that countries like Vietnam and the Philippines, which face lower tariffs when selling to the US, may become relatively more attractive suppliers in other industries.
Across the board, there is relief that the impact is likely to be less severe than initially feared. However, the decisions already made suggest long-term ramifications for global trading patterns and alliances.
The introduction of uncertainty into the long-standing relationship with the US has also added momentum to the UK’s efforts to strengthen ties with the EU and secure a trade deal with India.
For many countries, this has served as a wake up call – a need to remain alive to fresh alliances.
As the details are finalized, the implications for the US economy are becoming clearer.
Growth in the late spring benefited from a surge in export sales as businesses rushed to avoid higher tariffs on American goods.
Economists expect this growth to slow down over the remainder of the year.
The increase in tariffs, from an average of 2% at the start of the year to approximately 17% now, has significantly impacted US government revenue—a stated objective of Trump’s trade policy. Import duties have generated over $100 billion this year, accounting for about 5% of US federal revenue, compared to around 2% in previous years.
Treasury Secretary Scott Bessent anticipates total tariff revenue of about $300 billion this year. By comparison, federal income taxes generate around $2.5 trillion annually.
American consumers remain on the front lines and have yet to fully experience the price increases. However, as major consumer goods companies like Unilever and Adidas begin to quantify the cost increases, some price shocks are expected, which could delay Trump’s desired rate cut and potentially reduce consumer spending.
Forecasts are inherently uncertain, but this poses a real political risk for a president who promised to lower consumer prices, not implement policies that would increase them.
Trump and other White House officials have suggested providing rebate checks to lower-income Americans, the blue-collar voters who have supported the president’s political success, to offset some of the financial strain.
Such an effort could be cumbersome and would require congressional approval.
It also implicitly acknowledges that simply highlighting new federal revenue to offset current spending and tax cuts, and promising future domestic job creation and wealth, is politically risky for a Republican party facing midterm state and congressional elections next year.
Adding complexity is the fact that deals have yet to be finalized in several areas, notably with Canada and Taiwan.
The US administration has not yet announced its decisions regarding the pharmaceuticals and steel industries. The significant issue of China, subject to a different deadline, remains unresolved.
Trump agreed to extend negotiations with Mexico, another major US trading partner, on Thursday morning.
Many of the agreements reached have been verbal and remain unsigned. It is also uncertain whether the conditions attached to Trump’s agreements, such as increased spending on American energy or investment in America, will actually be fulfilled.
In some instances, foreign leaders have denied the existence of provisions touted by the president.
According to Mr. May, when assessing tariff agreements between the White House and various countries, the “devil is in the detail,” and the details are scarce.
It is clear, however, that the world has stepped back from the brink of a destructive trade war. Now, as nations navigate a new set of trade barriers, Trump aims to control the situation.
However, history suggests that his primary goal—to restore production and jobs to America—may achieve only limited success. And America’s long-standing trading partners, such as Canada and the EU, could begin to explore economic and political connections that bypass what they no longer perceive as a reliable economic ally.
Trump may be benefiting from the leverage provided by America’s unique position at the center of a global trading system that it spent over half a century establishing. However, if the current tariffs trigger a fundamental realignment, the outcomes may not ultimately favor the US.
The answers to these questions will emerge over years, not weeks or months. In the meantime, Trump’s own voters may still have to bear the costs—through higher prices, fewer choices, and slower growth.
Additional reporting: Michael Race. Top image credit: Getty Images
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