Desmond Lachman
Today’s announcement of a Japanese trade deal offers some good news and some bad news. The good news is that trade deals are finally being struck with a small number of our major trade partners. The Japanese deal will prevent Trump from carrying out his threat to impose a 25 percent tariff on Japan and will likely spare Japan from a recession.
The bad news is that the deal was still struck with a high basic tariff level of 15 percent. That can leave little doubt that Trump intends to maintain the highest average import tariff level since the Second World War. This will not be good for the US inflation and economic growth outlook. And it will certainly not be good for the rest of the world’s economic outlook, and especially for export-intensive economies like Japan.
On April 2, when Trump threatened reciprocal import tariffs on all of our trade partners, he indicated that this threat would force our trade partners to the negotiating table and soon result in 200 completed trade deals. Almost four months later, Trump has managed to finalize only five trade deals, with many of their details still to be negotiated. Those trade deals include pacts with the United Kingdom, Japan, Indonesia, the Philippines, and Vietnam. Trump has indicated that if trade deals are not negotiated with the rest of our trade partners by August 1, he will unilaterally announce punitive import tariffs on those countries.
By now, it should be clear that Trump is taking us to a permanent state of damagingly high import tariff levels. The many countries that do not have trade deals by August 1 will face the high sort of tariff levels that were threatened by Trump in his early April “liberation day” tariff announcement. The European Union, for instance, is being threatened with a 30 percent across-the-board tariff if it does not come to a trade deal.
However, judging by the trade deals struck to date, even if those remaining countries secure trade deals, the tariffs they will face will likely remain at a relatively high level. The Japan trade deal has a basic tariff of 15 percent. Indonesia and the Philippines have basic tariffs of 19 percent. Vietnam, on the other hand, has been subject to import basic tariffs ranging from 20 to 40 percent.
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