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No doubt President Trump will declare victory, despite rolling back tariffs at a drop of a hat. His repudiation of the moniker, “Mr. Tariff”, was evident in the speed with which he made a deal with China to scale back punitive tariffs, some as high as 145%. Even before the short negotiations with Chinese trade officials took place, Trump was already granting carve outs for major US multinational corporations operating in China, such as Apple, in response to overwhelming evidence that the U.S. would suffer more than China should these tariffs prevail over his four-year term. Most economists agreed that at these tariff levels, the bilateral trade flows would crater, and the U.S. would enter a major period of decline accompanied by rising prices.

The roll back of Liberation Day tariffs, leveled at nearly 100 countries, was one of the quickest reversals of economic policy witnessed by economists in living memory. Granted, these tariffs are on a 90-day suspension list, but we all know that a “pause” is Trump’s way of not directly conceding defeat, but putting tariffs in abeyance, only to dropped them at the end of the period. We have seen this movie before, and most likely there will be re-runs. In the words of Treasury Secretary Bessent, the 145% tariffs were “equivalent of an embargo... we do not want a generalized decoupling from China”. The agreement has the U.S. lowering its tariffs from 145% to 30%, while China cuts its tariffs to 10% from 125%. The extent of these dramatic cuts demonstrated how ruinous the Trump’s policy and the Chinese retaliation would likely turn out.

So, after nearly four months of utter chaos in the US trade policy, we are seeing a distinct pattern in which the President backs away from overly aggressive trade measures. 

• In the case of Canada and Mexico, there are a number of exemptions for products under the US-Mexico-Canada (USMCA) free trade agreement negotiated under the first Trump term; a 25% tariff still applies to Canadian steel and aluminum exports; given that Canada supplies 80% of US aluminum imports, it is a matter of time before that specific tariff is cut back;
• There is a 90-day pause on reciprocal tariffs, applied to all countries, with the exemption of China;
• Specific exemptions for iPhones and other electronics made in China;
• As yet, a not fully disclosed bilateral trade deal with United Kingdom; and,
• A 90-day rollback on tariffs on Chinese goods, allowing for products in transit to avoid tariffs.

There is a growing consensus amongst trade specialists that ultimate resting point for US tariffs will be a global tariff of 10%, and slightly higher for China. Despite Trump’s bravado about countries lining up to make bilateral trade deals, there is very little evidence that this is the case. Canada, for example, under its new Prime Minister, Mark Carney, appears to be in no hurry to enter into negotiations, should there be re-opening of the USMCA trade agreement. Canada holds considerable cards, including the major supplier of oil/gas, aluminum, potash and lumber, all vital to the US economy.   

Overall, after so much turmoil, the U.S. will face higher costs, at least a one-time 10% increase, for both businesses and consumers. Moreover, the decline in the trade-value of the US dollar will likely result in an increase in costs above 10%. Observers should not take any solace from the fact that tariffs have actually dropped so dramatically, some even before they were fully implemented. The whole process introduces a system where individual industries plead their special circumstances, ultimately leading to trade policy being dictated by political forces within the US business sector. 

More significantly, the Trump tariffs, at even the 10% level, is four times greater those tariffs existing prior to his taking office. Nearly 60 years of successful tariffs negotiations earlier in the GATT and later in its successor, WTO, have been essentially undone. Major US trading partners are now seeking alternative markets to the U.S. and we will see a re-ordering of trading patterns take hold.

Can we take any comfort that the tariff wall is only 10%?  

Was the last four months of turmoil worth it?

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