It was customary to say when President Trump assumed office that trade was one area worth watching. After all, Trump loved the word “tariffs” and threatened to use it massively against one and all. But fast forward 6 months, Trump has surprised everyone. Consider the deals he has made: with china in May, with Japan in July and now with EU. These are significant, since US, China, EU and Japan not only top the global GDP charts but also top the share of global trade. With these deals, it may even be argued, somewhat counterintuitively, that a certain amount of security and predictability has been injected by Trump into the global economy.
The one with China was perhaps the most important, at least from a geopolitical perspective. Foreign policy wonks were keen to know how he would deal with China. In the event, Trump agreed a deal with China, with both countries making compromises. The White House Fact Sheet said the following:
. Both US and China affirmed the importance of the critical bilateral economic and trade relationship between both countries and the global economy.
- For too long, unfair trade practices and America’s massive trade deficit with China have fueled the offshoring of American jobs and the decline of our manufacturing sector.
- In reaching an agreement, the United States and China will each lower tariffs by 115% while retaining an additional 10% tariff. Other U.S. measures will remain in place.
- Both sides will take these actions by May 14, 2025.
- This trade deal is a win for the United States, demonstrating President Trump’s unparalleled expertise in securing deals that benefit the American people.
The fact of the matter, however, is that both countries wanted a truce in the matter. But maybe, just maybe, the US wanted it more since China’s restrictions of rare earths to the American market had the potential to seriously hurt the US economy.
Japan, a treaty ally of the US, was next. Western analysts were concerned that Japan was being treated not as an ally but like any other country. But the deal announced on July 22 again called a truce between the two countries. The most important feature was the promised commitment by Japan to invest USD $550 billion directed by the United States to rebuild and expand core American industries. The following points are noteworthy:
- This is the single largest foreign investment commitment ever secured by any country in a trade deal and may generate U.S. jobs, expand domestic manufacturing, and secure American prosperity.
- These funds will be targeted toward the revitalization of America’s strategic industrial base, including:
- Energy infrastructure and production, including LNG, advanced fuels, and grid modernization;
- Semiconductor manufacturing and research, rebuilding U.S. capacity from design to fabrication;
- Critical minerals mining, processing, and refining, ensuring access to essential inputs;
- Pharmaceutical and medical production, ending U.S. dependence on foreign-made medicines and supplies;
- Commercial and defense shipbuilding, including new yards and modernization of existing facilities.
- The United States will retain 90% of the profits from this investment.
Japan may have found it convenient to agree to this massive investment in the US, rather than risk a trade war with an important ally. Japan has also agreed to a baseline 15 per cent tariff and has agreed to open up its market for American agriculture products, US autos and also agreeed to buy commercial aircrafts and LNG from the US.
Last, but not least, US has also agreed to a trade deal with its most important transatlantic partner i.e. the EU on July 27. The White House Fact Sheet calls it a “massive trade deal”. Again, the US has emphasized the fact that the EU will purchase USD 750 billion in US energy and will make investments amounting to USD 600 billion in the US, both by 2028. With the exception of steel, aluminum and copper where the EU will pay 50 per cent tariffs, all other EU exports to the US will attract a baseline tariff of 15 per cent. There has been some criticism from some EU countries, mainly France against the deal agreed with the US by the Commission. It is doubtful however that any country will derail the deal reached with the US.
It is worth recalling that in April of this year President Trump declared a national emergency in response to the “large and persistent U.S. goods trade deficit caused by a lack of reciprocity in bilateral trade relationships, unfair tariff and non-tariff barriers, and U.S. trading partners’ economic policies that suppress domestic wages and consumption”. The question is has Trump managed to find answers to the difficult question of America’s persistent trade deficit? Whatever the answer, it is clear that Trump’s negotiating strategy is based on two main objectives: one, securing market access using tariffs as an instument and two, seeking massive foreign investment from its trading partners into the US to create jobs and a manufacturing base to make America great again. Will it work? Only time will tell.
Diplomacy and Geopolitics 