Trump’s trade deals come with few details to flesh out big numbers
The administration is taking a victory lap, claiming vindication for the US president’s bargaining style as he prepares a raft of import-tax hikes before an Aug 1 deadline
[WASHINGTON] US President Donald Trump’s flurry of trade deal announcements are so far proving light on detail, with key aspects still under negotiation, partners giving mixed signals about what they signed up for, and big numbers shrinking under scrutiny.
Trump touted landmark agreements with Japan and the European Union in the past week, adding to pacts with a handful of smaller economies. An extension of the US-China tariff truce is also in the works. The administration is taking a victory lap, claiming vindication for Trump’s bargaining style as he prepares a raft of import-tax hikes before an Aug 1 deadline.
“I think the trade deals are working out very well, hopefully for everybody, but for the United States, they are very, very good,” the president said on Tuesday (Jul 29) while flying home to Washington from Scotland.
Yet while the scale of America’s tariff wall is becoming clearer, other details remain fuzzy in the extreme, especially investment promised by counterparties, which on paper exceeds US$1 trillion for the EU and Japan deals alone.
For Trump, these capital pledges are evidence that his protectionist agenda is on course to do what he promised it would: revive American manufacturing and create jobs. If actual investment falls short of the big numbers, tariffs could end up boosting revenue for the government, and costs for US consumers and companies, while failing to achieve those loftier goals.
‘Signing bonus’
Trump’s deal with Japan includes a US$550 billion fund that the US called a “foreign investment commitment”, and the president said amounts to “a sort of signing bonus”.
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But Japanese officials said only 1 per cent or 2 per cent of the total, a maximum US$11 billion, would be investment, with the rest essentially made up of loans. And they said that the 90 to 10 per cent profit split in America’s favour, highlighted by Trump’s team, only applies to that smaller investment portion.
At a minimum, the two countries are describing the accord differently, raising the potential for future snags.
“It’s not that US$550 billion in cash will be sent to the US,” Japan’s top trade negotiator Ryosei Akazawa said. But Commerce Secretary Howard Lutnick put it this way, speaking last week to Fox News: “This is literally the Japanese government giving Donald Trump US$550 billion.”
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Lutnick said that Trump would increase tariffs again if Japan reneged on the fund. As for the EU deal, he acknowledged on Tuesday that there’s “plenty of horse-trading left to do”.
The EU pledged US$600 billion in new investments. European officials say the target is just an aggregate of promises by companies, and the bloc cannot commit to a binding target. Neither side has spelt out the contents.
“Basically they are going to build the factories,” Lutnick told Fox News on Monday. “All the car companies committed they are going to build the factories. The pharmaceutical companies have gone out and said they are going to build these factories.”
The EU also promised energy purchases from the US worth US$750 billion over the next three years – roughly triple the current pace. That target could strain the capacity of American exporters as well as European importers, some analysts say.
Aside from the tariff rates, much of the recent deals consist of “vague promises with large numbers attached that don’t have any mechanisms for follow-through”, said Alex Jacquez, who served on the Biden administration’s National Economic Council. “Nobody seems to believe that these checks as written, are actually going to cash.”
Russia wildcard
There’s more clarity around the tariff numbers, though they are still in flux too.
Trump will raise duties on most imports from Japan and the EU to 15 per cent from the current 10 per cent. Those partners will get a partial waiver on certain industry-specific US tariffs that carry higher rates worldwide, such as for automobiles, but not on others, such as steel and aluminium, where talks on an exemption involving quotas continue.
The revised auto tariffs on Japan and the EU are not yet finalised but are expected to take effect on Aug 1, according to a White House official.
Trump says there are more of these sectoral tariffs to come, and some of his recent deals may cause confusion by preempting yet-to-be-announced numbers.
For instance, he pledged 15 per cent tariffs for the EU on semiconductors and pharmaceuticals, two sectors where rates have not been finalised. A senior US official also said that Trump agreed to grant Japan whatever the lowest rate is for those two categories, but that commitment is not in the public US fact sheet.
A White House official said that the lower 15 per cent rates for pharmaceuticals and chips would only kick in once the higher levies Trump has threatened under Section 232 of the Trade Expansion Act take effect.
‘Always willing’
Other already-announced deals have raised questions too, like the one with Vietnam earlier this month, which appears to have surprised officials in Hanoi with a tariff of 20 per cent, higher than they were said to have agreed to.
US and Chinese negotiators, after two days of talks in Sweden this week, said that they are on track to extend the tariff truce between the two countries. A wildcard there is Trump’s threat to impose new charges on countries that buy energy from Russia.
China is the biggest buyer of Russian oil, followed by India, which is still embroiled in talks with the US.
The fate of the two biggest US trade partners also seems to be headed down to the wire. Trump has downplayed the chance of a deal with Canada, though Canadian Prime Minister Mark Carney shrugged that off. Both Canada and Mexico face tariff hikes this week, but they will not apply across the board. Goods compliant with the USMCA trade pact are poised to maintain their current exemption, a major relief for both countries.
Some critics say the administration’s deal-by-deal approach to tariff rates risks ending up as a patchwork that lacks coherence. US auto companies, for example, objected to the Japan agreement, saying imported cars that do not have any US content are set to be taxed less than North American-built models that do.
For all the unresolved questions, the administration is casting Aug 1 as something of a milestone in setting rates after months of threats. It’s just not likely to be the final word in Trump’s rolling dealmaking.
Several more pacts are very close, and tariff rates will either be agreed or imposed by Aug 1, Kevin Hassett, head of the White House National Economic Council, said on Tuesday. But even after that, “people can continue to negotiate,” he said. “The president is always willing to negotiate.” BLOOMBERG
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