Markets were on edge this week as Donald Trump's August 1st
deadline for trade negotiations on US tariffs finally ran out.
Trump has already announced tariffs on goods imported from
many of America's largest trading partners as trade
negotiators rushed to strike last minute deals or extensions.
The deadline came more than 120 days after Trump first announced
his list of Liberation Day tariffs on imported goods back
on April 2nd. Despite delays, the Trump
administration now looks ready to roll out new tariff rates for
the countries that didn't manage to secure a deal before the
Friday deadline. White House Press Secretary
Caroline Leavitt announced that 2/3 of the USS 18 major trading
partners already have a deal deal and that letters have been
sent to an additional 17 nations.
The White House said that countries that have not struck a
trade deal or have not received a letter with a new tariff raid
will hear from the Trump administration by midnight on
Friday. Taiwan, the world's most
important semiconductor exporter, was hit with a 20%
tariff. Tariffs were raised on Canada,
historic US ally and major trading partner, to 35%.
India was hit with a 25% tariff and Switzerland with 39%.
Trump said that he would not be extending the deadline this time
around. Tweeting the August 1st deadline
is the August 1st deadline. It stands strong and will not be
extended. A big day for America on his
version of Twitter, which is called Truth Social.
Earlier this week, it was all in capsule.
I was probably supposed to shout that at you, but I won't.
On Thursday, he announced that he would delay higher tariffs on
Mexico by 90 days. At midnight this Thursday, US
Customs and Border Protection began charging importers the new
duties, which range from 10% to 50%, with additional tariffs
being applied to certain industries like pharmaceutical
products, copper, steel and aluminium for most countries.
The Yale University Budget Lab announced on Monday that US as
consumers face an effective tariff rate of 18.2%, the
highest rate since 1934, which means that the average household
will see additional costs of $2400 in 2025.
That analysis came out before the announcement of additional
tariffs on India and the announcement delaying higher
tariffs on Mexico. US and Chinese negotiators
agreed earlier this week to push back the deadline for striking a
deal after talks failed to find a resolution this week across
the many areas of dispute. Back in April, Trump had claimed
to have done over 200 deals in an interview with Time magazine
and trade advisor Peter Navarro had said that 90 deals in 90
days was possible. The country has fallen far short
of that with only eight deals in 120 days, including one with the
27 member European Union. The UK was the first country to
strike a trade deal with Trump back in May, agreeing to a flat
10% tax which US buyers will pay on most goods imported from the
UK. This was possibly the easiest
deal to strike for Trump due to the favorable pre-existing trade
dynamics between the US and the UK, where Britain only ran a
very small trade surplus in goods with the United States.
And it would appear that Trump prioritizes goods over services,
as it's 2025 trade policy agenda explicitly calls for production
economy, emphasizing manufacturing, agriculture, and
energy as the backbone of American prosperity.
Britain, like the US, runs a trade deficit, meaning that it
imports more goods and services than it exports.
In fact, it runs the third largest trade deficit in the
world, behind only India and the United States.
Within days of the deal being announced, the Financial Times
reported that China was upset that it had been structured to
squeeze Chinese products out of the British supply chain.
China's foreign minister said that it was a basic principle
that agreements between countries should not target
other nations. According to the FT, China has
warned other countries against signing trade deals with the US
that threaten Chinese interests. The USUK trade deal was
described by President Trump as being full and comprehensive.
It kept in place the 10% tax on most British imports.
In particular, it specified that cars imported from the UK would
face a 10% tariff in the United States, which is lower than the
15% rate that Americans will have to pay on cars imported
from the EU and Japan. The deal only applies to the 1st
100,000 British cars imported per year, which is approximately
the number of cars that Americans already buy from
Britain, and every vehicle sold above that quota will be hit
with a 25% tax, discouraging any increase in sales.
The feature of this deal that upset China was that the tariff
relief for steel and cars bought by Americans included conditions
requiring the UK to promptly meet US demands on the security
of the supply chains of steel and aluminium products exported
to the United States. The Chinese worry that this
could mean that they could be excluded from supplying British
firms that sell to Americans. The British government pushed
back against suggestions that the trade deal could be damaging
to China, saying that there was no such thing as a veto on
Chinese investment in the deal. A British government spokesman
told the BBC that the agreement with the US was in the national
interest to secure thousands of jobs across key sectors, protect
British businesses and lay the groundwork for greater trade in
the future, adding that any external provisions in the
agreement were not designed to undermine mutually beneficial
economic relations with any third country.
This was widely interpreted as a reference to British Steel,
which had been owned by Chinese Jinyi Group until earlier this
year. Although the UK government took
operational control of the company to prevent the closure
of its Gunther blast furnaces, Jinyi still remains the legal
owner. Under the terms of the deal,
steel from such facilities may not qualify for tariff relief
unless ownership is restructured to meet US standards.
This approach reflects what might be a broader shift in U.S.
trade policy under Trump. Tariffs are no longer just a
tool for protecting domestic industry.
They're being used as a mechanism for enforcing
geopolitical alignment. The UK deal in this sense, might
be a prototype for a new kind of trade agreement when that
rewards compliance with US strategic objectives and
penalizes economic entanglement with China.
Beijing's reaction to the UK deal was swift and pointed.
Chinese officials warned other countries that they deal with
against signing agreements with the US that threaten Chinese
interests. And China accelerated its
efforts to remove foreign components from domestic supply
chains, the goal being to insulate China from future trade
disruptions and reduce dependency on foreign technology
and input. This strategy broadly aligns
with China's long standing dual circulation policy, which aims
to boost domestic consumption and technological
self-sufficiency while maintaining selective engagement
with global markets. The UKUS deal and others like it
have possibly reinforced Beijing's determination to
reduce its risk of being pressured by foreign
governments. China has also been responding
diplomatically to US pressure by stepping up engagement with
countries in Southeast Asia, the Global South and within the
BRICS block, offering alternative trade and investment
partnerships. At the same time, it's continued
trade talks with the US, resulting in a 90 day truce in
May that temporarily reduced tariffs on Chinese goods from as
high as 145% to around 40%. That truce How?
Whoever is fragile, Trump has tied further tariff reductions
to cooperation on unrelated issues, making it difficult to
know that when a deal is struck, will it be stuck to or
renegotiated again on a whim? This transactional approach has
left Beijing very wary. Chinese officials have indicated
that they'll raise concerns directly with the UK and US, but
are avoiding escalation, possibly to preserve room for
negotiation or to avoid disruption ahead of a potential
Trump XI summit later this year. While other Asian countries may
be nervous of China, they see the Chinese companies will still
invest in their countries while American businesses are
retrenching to North America. The E US agreement with
Washington, finalized a few days ago, was broader in scope.
It imposed a 15% tariff on roughly 70% of EU exports to the
US, including pharmaceutical semiconductors in cars.
In exchange, the EU pledged to buy $750 billion in US energy
and invest $600 billion in American industry.
Steel and aluminium exports were capped under a quota system
system, with excess volumes facing a 50% tariff.
In return, the EU decided to put no tariffs on US goods.
The one sided nature of this deal is somewhat surprising as
the European and US economies are fairly similar in size and
the trade relationships are interrelated on both directions.
Ben Hall argued in the Unhedged podcast that the asymmetry of
the US EU trade deal stems from the structural and philosophical
nature of the European Union itself.
The EU was founded to promote free trade and market
liberalisation amongst its member states, making it
inherently reluctant to impose tariffs or engage in aggressive
trade retaliation. This foundational ethos,
combined with the E us fragmented decision making
process, where divergent national interests often hinder
unified action, left Europe unable to respond decisively to
the protectionist stance of the United States.
As a result, the EU accepted A1 sided deal, prioritizing
internal unity and stability over economic leverage.
Critics in Paris in Berlin were quick to describe the deal as
capitulation. The FTS editorial board
described it as rubber stamping the US president's New World
Order, arguing that Europe had validated Trump's bullying trade
agenda. The Economist offered a more
pragmatic take, arguing that the EU had secured parity with
Japan's terms and retained its regulatory autonomy over digital
services. The real problem, it argued,
lies in Europe's internal frictions, not in the asymmetry
of the deal. The EU's negotiating position
was weakened by internal divisions.
France, which like the US runs a persistent trade deficit, pushed
back against agricultural concessions.
Germany, which runs a trade surplus, sought to protect its
car industry. Eastern European states, who are
most concerned with security guarantees, were reluctant to
challenge Washington at all. The result was a fragmented
front that left Brussels unwilling to push hard.
The corporate response to Trump's tariff regime has been
mixed. Ford reported a surprise
quarterly loss in July, citing $800 million in tariff related
costs and warning of a $3 billion hit for the year.
BMW, in contrast, has downplayed the fallout with a major US
production base in South Carolina.
It's been partially shielded from the worst effects.
Apple, the company that's been most heavily hit by Trump's
trade and tariff agenda, lost almost $700 billion in market
cap since the Liberation Day announcement, posted blockbuster
quarterly earnings this week. The company's CFO said there had
been some evidence that sales were boosted by US customers
buying early to get ahead of US tariffs earlier in the quarter.
Other sectors are also feeling the strain.
Semiconductor firms have warned that the new tariffs could
disrupt global supply chains already under pressure from
export controls and geopolitical tensions.
Pharmaceutical companies, many of which rely on Chinese active
ingredients, are reassessing sourcing strategies.
Trade associations have expressed concern about the lack
of clarity in some deals. In several cases, tariff relief
is tied to opaque national security reviews, leaving firms
uncertain about compliance. Big businesses are delaying
their investment decisions while they wait for guidance on how
the new rules will be enforced. While the Trump administration
has touted a flurry of new trade deals, legal experts and
lawmakers argue that these are not actually real trade
agreements. Under the US Constitution, only
Congress has the authority to regulate commerce with foreign
nations and to approve binding trade agreements.
Instead, the administration has relied on executive agreements
and emergency powers, particularly the International
Emergency Economic Powers Act, to unilaterally impose tariffs
and negotiate tariff adjustments.
These arrangements, critics argue, lack legal standing and
bypass the legislative process. Senator Ron Wyden, the ranking
member of the Senate Finance Committee, issued A rebuke last
month in a letter to U.S. trade Representative Jameson Greer,
saying the Constitution provides Congress with sole authority to
lay and collect duties and to regulate commerce with foreign
nations. The president lacks the
authority to enter into binding trade agreements absent approval
from Congress. He urged the administration to
respect Congress's constitutional authority over
trade and power to write U.S. law, warning that continued
circumvention could provoke legal challenges and undermine
the legitimacy of U.S. trade policy.
While the Trump administration has framed its recent executive
arrangements as trade deals, many of America's trading
partners are still treating them as provisional and politically
contingent, rather than as binding international
agreements. Countries like the UK, Japan and
Vietnam have entered into what the White House calls framework
agreements, or tariff understandings, but these are
not treaties ratified by legislators.
Instead, they are temporary arrangements negotiated under
pressure, often in exchange for reduced tariffs or exemptions
from broader US measures. European officials have been
particularly cautious. A senior EU trade official,
speaking anonymously, described the July 2025 agreement as a
tactical pause, not a strategic settlement.
Similarly, Japan's Ministry of Economy, Trade and Industry
issued a statement noting that it's agreement with the US
remains subject to further negotiation and domestic review.
This ambiguity reflects a broader concern that these deals
could be reversed or invalidated by a change in Trump's mood by
US courts or by a future administration.
A federal appeals court is currently reviewing the legality
of Trump's use of emergency powers to impose sweeping
tariffs, with analysts warning that the deals may ultimately be
ruled illegal. In effect, many countries are
hedging their bets, accepting temporary agreements while
preparing for further volatility, as one trade lawyer
told CNN. These aren't trade deals,
they're ceasefires. The inflationary consequences of
Trump's tariffs are beginning to surface.
While the US administration keeps claiming that other
countries pay these tariffs, that's just not how they work.
The fact is, the European Union is the monster deal.
President Trump did that deal yesterday.
We were all together in Scotland.
We got the deal done. So we hear how it goes.
The European Union is going to pay 15% and they sell US $600
billion worth of goods. That's $90 billion for America.
The tariffs push up the price of imported goods for American
consumers and can be expected to hurt foreign exporters as the
higher prices will likely lead to lower sales.
But Americans do pay this tax. Fed Chair Jay Powell, who was
nominated by Donald Trump in 2018, has resisted the
president's calls for aggressive rate cuts.
Powell cited uncertainty over the inflationary impact of
tariffs, many of which exceed the 10% threshold economists had
assumed would be the ceiling. Two Fed governors dissented from
the decision not to cut rates, marking the first such split
since 1993. Markets interpreted Powell
stands as hawkish, with short term Treasury yields rising and
the dollar rallying. Analysts at JP Morgan and
Citigroup have warned that consumer spending could soften
further in the second-half of the year as businesses pass on
higher input costs. The inflationary impact is not
limited to the US either. European central banks are also
monitoring the situation closely, with the ECB warning
that higher US tariffs could spill over into global prices.
For now, the Fed is holding its ground, but the pressure is
mounting. One of the questions that must
be asked is what is Trump's overall goal with these tariffs?
Is he hoping to strike deals or hoping to use tariffs to raise
revenue? The answer might be both.
Trump has framed each agreement as a victory for American
workers, but the deals also serve a fiscal function.
Tariffs now generate 10s of billions of dollars in revenue,
effectively acting as a tax on imports.
The deals are structured, not. Not just to rebalance trade
flows, but to enforce a new geopolitical alignment, one in
which access to U.S. markets may be contingents on distancing
yourself from China. Trump's tariff policy has never
been solely about correcting trade imbalances.
While his rhetoric often invokes the language of economic
nationalism, protecting American jobs, reviving domestic
manufacturing, the pattern of his actions suggests A broader,
more coercive use of trade tools.
The tariffs on Mexico and Canada were widely seen as a
demonstration of power rather than a response to specific
economic grievances. Nowhere is this clearer than in
Trump's move against Brazil. The administration announced a
50% tariff on Brazilian aluminium and agricultural
exports, not in response to trade practices, but as
retaliation for Brazil's prosecution of former President
Jair Bolsonaro. Trump denounced the Brazilian
legal proceedings as politically motivated and accused Brazil's
judiciary of suppressing free speech.
This episode underscores how tariffs under Trump have become
instruments of ideological alignment and personal loyalty,
rather than just as tools of economic policy.
Trump's approach has significant implications for the global
trading system. It undermines the WT OS most
Favored nation principle, which requires countries to treat all
trading partners equally and avoid discrimination.
By offering preferential terms to allies who accept US
conditions and penalizing those who don't, Trump is replacing
multilateralism with a confusing array of bilateral deals.
While tariffs are often framed as tools of trade policy, they
also function as a form of taxation.
According to estimates from Yale Budget Lab, the US is now
collecting tariffs on nearly half of all imports and bringing
in 10s of billions of dollars in revenue annually.
A government can, of course, bring in tax revenue however it
wants, and Trump has paired sweeping income tax cuts with
these tariffs, effectively shifting part of the federal
revenue burden from domestic earners to consumers of imported
goods. This raises the question of
whether this is an efficient way to collect revenue or not.
Economists generally argue the tariffs are a distortionary and
regressive form of taxation, raising price for consumers and
disrupting supply chains compared to more transparent
mechanisms like income tax. Yet for Trump, tariffs offer a
politically potent blend of revenue generation and national
signaling. Trump's tariff blitz is an
attempt to reorder global trade around American leverage.
America's allies have been drawn into a new system of conditional
market access, where tariff rates are tied to compliance
with US strategic objectives. China, meanwhile, is
recalibrating its supply chains and diplomatic posture and
response. For businesses, the message is
clear. The error of frictionless global
trade is over, supply chains are being redrawn, investment
decisions are being delayed, and the cost of doing business
across borders is rising. It's not at all obvious that
these deals are set in stone, either.
They might well be renegotiated constantly in the coming years.
Well, something did need to be done about America's persistent
trade imbalances, and there are good arguments for moving
strategically important manufacturing onshore.
The question remains whether the current approach, marked by
sweeping and frequently shifting tariffs, is the right one.
Tariffs can raise revenue, and Trump has used them to offset
income tax cuts. But they are a very blunt
instrument. They distort prices, disrupt
supply chains and create uncertainty for businesses and
consumers alike. Imported goods often spend 45
days at sea before reaching US ports, where they're taxed.
And with tariff rates changing unpredictably, importers are
left guessing at final costs, undermining planning and
investment. On top of that, it's far from
clear that tariffs will achieve their stated goal of reviving
American manufacturing. China's manufacturing workforce
alone numbers over 220 million people, more than the entire US
labor force. And with American unemployment
near historic lows, there's limited slack to absorb large
scale reassuring. As Robert Armstrong rightly
observed in a recent podcast which are linked to in the
description, history suggests that protectionism tends to lead
to lower productivity and stifles innovation.
It invites rule bending and rent seeking rather than competition
and excellence. If the goal is to strengthen the
US economy, then the tools must be chosen with care and wielded
with a clear understanding of their long term consequences.
Thanks for tuning into this week's podcast, with a special
thanks to my supporters on Patreon whose donations make it
all happen. If you'd like to support the
channel, I'll leave a link in the show note.
Have a great week and talk to you again soon.
Bye.