Tariffs Set to Roll Out Amid Trade Negotiations
As President Donald Trump’s expansive tariffs are set to take effect on Friday, many major trading partners are already steeped in negotiations, while others face the imminent risk of penalties.
The August 1 deadline, dubbed “liberation day” by Trump, will initiate new tariff rates first announced in April, targeting nearly all trading partners for what the president describes as unfair trade practices. Significant issues remain, such as the unresolved status of negotiations with China, the U.S.’s largest trading partner, along with legal hurdles that could potentially disrupt Trump’s broader trade objectives.
Originally, these tariffs were scheduled to begin on July 9, but the government postponed the deadline to allow for more negotiation time.
Trump stated that the new August deadline would hold firm and emphasized this on his Truth Social platform, declaring the tariffs “strong and unexpanded.” However, just the day after, he revealed that Mexico would receive an extension of 90 days before a 30% tariff kicks in.
Several major trading partners have managed to secure agreements ahead of the new tariffs. Facing a 25% duty on exports, Japan has negotiated its rate down to 15% in return for allowing the U.S. access to its agricultural products and automobiles. Japan has also committed to investing $550 billion in U.S. projects, with expectations that 90% of the profits will remain in the U.S., as per the Trump administration’s claims.
Commerce’s Howard Lutnick remarked that the U.S.-Japan deal is historic, although Japanese officials have indicated that the $550 billion investment is contingent on contributions and risks from both parties.
The UK was quick to sign a contract in May, agreeing to a tariff rate of 10% while enhancing market access for U.S. exports. The Trump administration lifted tariffs on UK steel and aluminum, contingent on UK businesses addressing barriers to trade with China.
Vietnam’s trade agreement also mirrors these provisions, focusing on preventing the rerouting of goods through third countries to sidestep U.S. tariffs on Chinese products. Just recently, the European Union made an agreement with the Trump administration to accept 15% tariffs on most goods, committing to buy $700 billion in American energy.
South Korea secured a contract for a 15% tariff alongside a commitment to invest $350 billion in U.S.-owned projects. Similarly, smaller trading partners like Indonesia and the Philippines have also indicated agreements as the August deadline approaches.
Kenneth Rapoza, a global trade analyst, noted that Trump aims to enhance market access for vital commodities while fostering foreign investments in the U.S. Yet, he cautioned that the details and commitments made could take significant time to materialize.
In other developments, U.S. and Chinese officials met in Switzerland recently, extending a trade ceasefire that is due to expire on August 12. Current negotiations include tariffs of 30% on Chinese imports and 10% on U.S. goods, all aiming toward reaching a more permanent agreement.
As part of the ongoing detente, China has agreed to facilitate the export of essential rare earth minerals while the U.S. has eased restrictions on sending certain chip design software. Yet, concerns linger about China’s ongoing purchases of Russian oil, which could lead to tariffs exceeding 100% if they continue.
Additionally, the Trump administration is taking steps to close what’s been deemed a “minimal” loophole for customs that allowed certain packages to enter without formal entry, which has been exploited by Chinese shippers for illegal imports.
Unfortunately, many of the U.S.’s significant trading partners still haven’t reached agreements prior to the imminent deadlines. Specifically, Canada, a major supplier, faces a 35% tariff unless they finalize a transaction by Friday. Trump indicated an expectation for a deal, especially following Canadian Prime Minister Mark Carney’s recent announcement regarding the recognition of a Palestinian state.
India and Brazil are also in the crosshairs, with Brazil facing a 50% tariff on most exports starting Friday. Rapoza mentioned that nations willing to renegotiate barriers with the U.S. have seen better outcomes, yet some are reluctant to distance themselves from China, putting them at a disadvantage.
Legal challenges loom over the implementation of these tariffs, as they rely on the International Emergency Economic Powers Act, which has not previously been used to impose tariffs. There’s skepticism that this could face legal challenges, with the U.S. Court of Appeals preparing for discussions soon.
Rapoza warned that there’s a strong possibility these tariffs might be ruled illegal, which could spell trouble for the Trump administration, despite having already amassed significant tariff revenue contributing to a surplus.
Nevertheless, other legal avenues remain open to the Trump administration, allowing for use of different sections of the Trade Act. Tariffs have historically been implemented on various markets, like steel and aluminum, and those are currently not facing challenges as they align with previous administrations’ practices.
Stern expressed hope that the administration might utilize tariffs as a temporary tool rather than a lasting solution, emphasizing that the aim should be to avoid long-term imposition while leveraging them for beneficial trades.
