President Donald Trump has initiated his first trade deal, igniting conversation over the future of other existing trade agreements. The U.S and U.K came to an understanding on Thursday to reduce trade barriers for cars and agricultural goods, although this only had a marginal effect in reducing the impact of Trump’s proposed 10% “reciprocal tariffs” on the U.K, America’s 11-th largest trading partner.
Trump’s July deadline for countries subjected to reciprocal tariffs to initiate negotiations doesn't leave much time for agreements with a large number of countries. U.S and Chinese officials have begun negotiations this weekend, presenting the U.S.'s biggest challenge regarding tariffs yet.
Economists, in their search for indicators of future U.S trade deals, are looking at two factors: the likelihood of a base tariff remaining with all countries, and the departure of the next wave of announcements from traditional trade agreements.
A significant indication comes from Chris Zaccarelli, Chief Investment Officer for Northlight Asset Management, who said "It is an important test case and a model for what could be accomplished."
Trump implied that the 10% baseline tariff for the U.K was the lowest achievable, suggesting that a similar tariff level would prevail with other countries, no matter the successful negotiation. Consequently, the overall U.S tariff is set to stay in double digits.
Territorial trade experts have suggested a 10% tariff on most trading partners could likely result in increased inflation, negatively impact the job market, and raise potential issues with longer stays. Federal Reserve Chair Jerome Powell previously advised these import taxes would make it harder for the Federal Reserve to meet its objectives of low inflation and high employment.
Despite these concerns, British Prime Minister Keir Starmer showed optimism, indicating this was the start of more trade talks between the countries, and set a platform for future discussions. The likelihood is the upcoming agreements will offer guidelines for improving trade relationships, rather than emerging as more traditional trade agreements. As Deutsche Bank analysts emphasized, "this will likely be a framework…that will provide an important template for negotiations with other countries and a good guide to the long-term tariff strategy of the U.S."