Colin Grabow
One hopeful theory behind the Trump administration’s “Liberation Day” tariff increases was that they were a negotiating tool to ultimately produce a more open trade environment. The tariffs would bring other countries to the negotiating table, deals to open foreign markets would be concluded, and the tariffs would be removed. Freer and more open trade would prevail.
Well, so much for that.
Last Thursday, the Trump administration announced its first trade deal since its April 2 tariff hike, and it’s clear that higher tariffs are here to stay. Reached with the United Kingdom, the deal — billed by the White House as “historic” and a “breakthrough” — improves trade conditions only relative to the upheaval of recent weeks. Compared to the trade conditions that prevailed when Trump took office in January, there is little to celebrate.
Before Trump unleashed his tariff whirlwind, Americans enjoyed an average tariff rate of 3.3 percent on imports. Now, goods arriving from the UK face a 10 percent rate (apparently the lowest tariff any US trading partner can hope for). Tariffs on British auto imports were just 2.5 percent only months ago, but will now be four times higher (and that’s only for the first 100,000 vehicles, with any auto imports beyond that number facing a 25 percent tariff).
For all the talk of tariff hikes as a mere tactic, they are now an enduring feature of the trade landscape. That President Trump is touting an additional $6 billion in tariff revenue as one of the US-UK deal’s selling points further suggests their staying power.
In fairness, the news isn’t all bad. The agreement will allow thirteen thousand metric tons of US beef exports to the UK to qualify for duty-free status, as will 1.4 billion liters of (government-subsidized) ethanol. The US, meanwhile, will allow a portion of British steel and aluminum to enter with zero percent tariffs, although details of this arrangement are still undetermined.
In fact, many of the agreement’s claimed benefits have yet to be fully hashed out. The two countries intend to reduce tariffs on a “range” of goods, but only “following a reasonable period of negotiation.” Similarly, the two countries “plan to work constructively” to “enhance” agricultural market access and intend to negotiate new additional agreements on mutual recognition regarding the regulation of certain industrial goods.
The five-page document outlining the deal’s general terms uses some variation of “intend” or “plan to” 20 times. In many ways, the US-UK deal seems to be merely an agreement to eventually reach an agreement.
The less-than-comprehensive nature of the US-UK deal isn’t surprising. Trade agreements rarely happen quickly, usually requiring about one and a half years to conclude. But — perhaps with an eye toward reassuring markets and having something to show for its controversial trade moves — the White House seemed particularly eager to announce that a deal had been struck.
The end result is an agreement that, at best, will only partially undo some of the earlier damage wrought by President Trump’s tariff-first, bull-in-a-China-shop trade policy. For all of the president’s criticism of how previous administrations have handled trade, there’s no evidence he has managed to formulate a superior approach.
Indeed, there’s good reason to think it is distinctly suboptimal.
To see why, consider another trade deal announced last week that also involves the United Kingdom. Signed with India, the deal will see the UK gain substantially improved access to an economy known for both its size (the world’s 5th-largest) and high trade barriers. Tariffs will be cut on 90 percent of British exports to India, with 85 percent to become tariff-free within a decade. The UK, meanwhile, will eliminate tariffs on 99 percent of Indian imports that account for nearly 100 percent of trade value.
It’s a significant win for consumers and businesses in both countries. And it was all done without roiling markets and business confidence.
It also wasn’t easy. Negotiations between the two countries began in January 2022.
In contrast, the Trump administration appears to be emphasizing speed in its negotiations instead of agreements that are deeper and more economically significant. Evaluated by its ability to generate buzz, the Trump approach may have something to offer. But in terms of breaking down foreign trade barriers, doing so reciprocally, and more fully harnessing the benefits of free and open trade, it’s plainly second-best.
The proof of the pudding will be found when trade negotiations currently taking place between the United States and India reach their conclusion (President Trump and Treasury Secretary Bessent have intimated that a deal is within striking distance). The UK-India agreement should serve as a benchmark for whatever deal is concluded. It will be deeply surprising if the terms reached by New Delhi and Washington, negotiated in mere weeks or (at most) months, will equal, much less surpass, the UK-India agreement’s stripping away of tariffs and other trade barriers.
The deal will almost surely leave 10 percent baseline US tariffs on Indian goods in place, while any tariff reductions the US secures from India will be inferior to those in the India-UK agreement. If the new US-UK deal is any guide, expectations should be tempered that it will produce a net improvement in trade openness between the two countries.
President Trump is a self-described “Tariff Man” with a penchant for dealmaking. With that in mind, trade deals like the US-UK agreement that result in higher tariffs and a more restrictive trading environment than when he took office seem about where expectations should be set.