UK deal shrewd start, US to continue to change tariffs: Economists
The US trade deal with the UK and the decision to hold talks with China brought positivity after turbulence for world markets related to US President Donald Trump’s 2.0 tariffs.
Trump signed an executive order in early April that imposed reciprocal tariffs on nations worldwide, stating that all countries will be subject to a minimum baseline tariff of 10%, with some, such as Canada, Mexico, China and EU states, paying higher rates.
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A landmark US-UK trade agreement will significantly expand US market access to the UK, unlocking a $5 billion opportunity for American farmers, ranchers and producers, according to the White House.
The deal includes more than $700 million in ethanol exports and $250 million in agricultural products, and strengthens US competitiveness by closing loopholes in the UK’s procurement market, streamlining customs procedures for US exports and establishing high-standard commitments on intellectual property, labor and environmental protections, it said previously.
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A reciprocal 10% tariff rate, announced on Liberation Day, or April 2, is now in effect. Under the UK deal, the first 100,000 vehicles imported annually into the US will face a 10% tariff, with additional vehicles subject to 25%.
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Following the deal, the US also reached a deal with another global giant, China, to suspend tariffs for 90 days.
The US will reduce tariffs on Chinese products from 145% to 30%, while China’s will be reduced from 125% to 10% by May 14.
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– UK deal promises future tariff agreements
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The landmark framework tax agreement with the UK, with details yet to be worked out, is a shrewd start to the tariff redesign policy for the US, according to a professor of economic history at the University of Missouri.
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The UK left the EU in “Brexit” with the idea that it would enact free trade agreements (FTA) with other countries and in particular the US, Max Gillman told Anadolu.
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“This would free up their trade relative to the restrictive tariffs and non-tariff barriers to imports trying to enter the EU market,” he said.
“By starting the tariff realignment policy first with the UK, the UK benefits enormously by finally enacting an agreement with the US, after the promises of Brexit.
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“The US likewise benefits by showing markets that the tariff renegotiation strategy was moving forward; this promises to set up future tariff agreements,” he said.
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– New deals coming
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Gillman said there will probably be new trade agreements to be negotiated by the US, focused first on friendly nations and allies, as they are the easiest to negotiate in the shortest time, as evidenced by the UK deal.
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“For example, Canada and Mexico must be under full negotiation at this point, as evidenced by Prime Minister (Mark) Carney’s trip to the US so soon after his election in Canada,” he stressed.
Mexico may be harder to negotiate because of the iron hold of drug cartels on so much of its economy, he said, adding that the US will want to combine Canada and Mexico, given current trade agreements among the three countries.
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After that, it is clear that the US would like to negotiate a treaty with the EU, he said. “This is difficult because of their many non-trade barriers that closely protect their markets, such as agriculture, even as this is in violation of the WTO (World Trade Organization) agreement,” he said.
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He said Asian countries will also be on the list, with Japan and South Korea first, as they are close allies.
– Trump to retreat from tariffs
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Charles Calomiris, an economist at Columbia Business School, said the current tariff policy will cause inflation during the next year of greater than 5%, and a reduction of GDP of more than 2%.
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“Of course, that could be offset to some degree by the positive effects of his other policies, but it is more likely than not that the US will soon experience a recession,” he asserted.
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Calomiris said it is of course possible that Trump will retreat from the tariffs once the adverse consequences are visible to him.
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“If he does not do so, his party likely will lose control of the House in 2026,” he added. “And because neither he nor either the Democrats or the Republicans in Congress are willing to address the US fiscal time bomb, which will blow up in three to five years, things are likely to get worse for the US economy in the medium term.”
– China debate
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Gillman stressed the fact that simultaneous negotiations are beginning with China bode well for the world economy, even if it is focused on fentanyl.
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“It appears clear that this pretext is being used, of course in a serious way, to begin the full renegotiation with China for its years of state subsidies to firms mainly through its State-Owned Enterprises (SOE) that make up more than half of the economy,” he noted.
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Gilman noted that the WTO prohibits subsidies from the government to private firms; adding that it was the basis of the famous case brought to the organization between Airbus and Boeing — the degree or existence of government subsidies.
In addition, China continues to appropriate intellectual property rights through its longstanding prohibition of majority ownership by foreign firms of Chinese-based companies, which was relaxed only recently, Gillman asserted.
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“Its recent relaxation means that many of these companies remain as majority Chinese-owned companies, so that the appropriation of intellectual property continues to this day,” he added.
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– US-China war
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“Tension with the Chinese negotiation is ripe because of the Chinese military aggression in the Taiwan area and the Philippines, its military assistance to Russia, and its transfer of military technology to Iran,” said Gillman.
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The Chinese economy will collapse if cut off from US trade, he said. “This makes it a war-footing move by the US to raise tariffs so high for China.
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“In a sense, it recognizes that military confrontation already exists between the US and China and the tariff policy is a strategic way to disable China from funding the military with high economic growth as in the past,” he added.
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