“The reality is that US tariffs on UK exports remain significantly higher than they were at the start of the year.” 

—John Denton, Secretary General of the International Chamber of Commerce

Before Trump 2.0., free trade (or at least something approximating it) was the goal of most high-profile trade negotiations. At the moment, it's lowering tariffs from “sky high” to “not as high.”

While the end-game of current US trade policy remains unclear (a permanent new source of revenue; a negotiating tactic; the re-shoring of manufacturing; all three?), the deal struck between the UK and the US last week provides some clues.

The big clue is that the deal (which is still evolving and will need to be approved by the US Congress) does not eliminate US tariffs on U.K. products. It removes the 25% tariff on British steel and aluminum and reduces the 27.5% tariff on the first 100,000 British cars exported to the US to 10%. For everything else, a blanket 10% tariff remains in place. This suggests that something similar (i.e. a base US tariff rate that applies broadly with some exceptions) may be a core US goal when seeking agreements with other countries.

If this is the case, will a hypothetical new Canada-US trade deal continue the current exemption from blanket US tariffs for exporters that meet country of origin requirements? And is there now a path forward to reduce or eliminate tariffs on specific industries like autos and auto parts?

The 90-day truce between the US and China announced over the weekend is another case in point. The world’s two largest economies agreed to reduce the trade-inhibiting tariffs they recently imposed on one another (145% on Chinese goods and 125% on U.S. goods). Financial markets took it as a shot in the arm with the S&P 500 up by 3.3% yesterday.

But, as with the US-UK deal, the truce reduces the tariffs (to 30% on Chinese goods and 10% on US goods), but does not remove them.

More “deals” are expected, but for now, analysis by The Budget Lab at Yale shows that US consumers face an effective tariff rate of 17.8%. This is a significant improvement over the 28% rate they faced before the temporary truce with China, but it’s still the highest since 1934.

So while these developments will apply some short-term grease to the global economy’s tariff-impeded gears, they highlight the degree to which US trade policy has shifted and suggest that, whatever the new normal is going to be, US tariffs will be part of it. In the meantime, trade uncertainty is the current new normal and remains a headwind to growth despite these two “deals.”

Answer to the previous trivia question: Alberta reached (according to Statistics Canada’s annual estimates) one million residents in 1953.

Today’s trivia question: When was the British company Rolls-Royce founded?