WASHINGTON (AP) — President Donald Trump is reshaping global economic dynamics according to his vision. Trading partners ranging from the European Union to Japan and Vietnam appear to be yielding to the president’s demands, accepting higher costs — in the form of elevated tariffs — for access to the U.S. market. For Trump, these agreements, achieved through a combination of threats and persuasion, represent the realization of a long-held belief in protectionism and a high-stakes gamble that it will yield political and economic benefits domestically.
On Sunday, the United States and the 27-nation European Union announced a trade framework agreement: the EU agreed to accept 15% U.S. tariffs on most of its goods, easing fears of a major trans-Atlantic trade conflict. Additionally, the EU committed to purchasing $750 billion in U.S. energy products and making $600 billion in new investments by 2028, according to the White House.
“We just signed a very big trade deal, the biggest of them all,” Trump declared on Monday.
However, there is no certainty that Trump’s sweeping changes to U.S. trade policy will result in the positive outcomes he has promised. The framework agreement lacks detailed provisions. Most trade agreements require months or even years of meticulous negotiation, often hinging on fine details.
Financial markets, initially unsettled by the president’s protectionist approach, seem to have adjusted to a reality where U.S. import taxes — tariffs — are at their highest levels in nearly a century. Billions in new revenue from these levies on foreign goods are flowing into the U.S. Treasury, potentially offsetting some of the costs of the massive tax cuts enacted on July 4.
Independent economists warn that high tariffs are likely to increase prices for American consumers, limit the Federal Reserve’s ability to cut interest rates, and reduce overall economic efficiency over time. Critics argue that the middle class and lower-income Americans will bear the brunt of these costs.
“It’s quite striking that it’s being viewed as a relief,” said Daniel Hornung, a former Biden White House economic official now affiliated with the Housing Finance Policy Center and the Massachusetts Institute of Technology. “But if the new standard across all trading partners is 15%, that could significantly slow growth and increase the risk of recession, while also complicating the Fed’s ability to cut rates.”
The EU agreement followed closely on the heels of a similar deal with Japan, which also accepted 15% U.S. tariffs and pledged investment in the U.S. Earlier, the U.S. reached agreements with Vietnam, Indonesia, the Philippines, and the United Kingdom that significantly raised import tariffs compared to pre-Trump levels.
More one-sided trade agreements are expected as countries rush to meet a Friday deadline after which Trump will impose even higher tariffs on nations that fail to make concessions.
Trump’s long-standing economic theory is now being tested in the real world. The U.S. president has long argued that America made a mistake by not leveraging its position as the world’s largest economy and erecting a wall of tariffs, effectively making other countries pay for access to the vast U.S. consumer market.
To his closest advisors, Trump’s use of tariffs has validated their confidence in his negotiating skills and their belief that economists warning of downturns and inflation were mistaken. Stocks dipped slightly in Monday afternoon trading, but have largely recovered from the tariff-induced selloff in April.
“Where are the ‘experts’ now?” Commerce Secretary Howard Lutnick posted on X.
But the story is far from over. Many details of Trump’s trade agreements remain vague and have not been formally documented. The U.S. and Japan, for example, have offered differing interpretations of Japan’s commitment to invest $550 billion in the U.S.
“The trade agreements do seem to represent a qualified success for Trump, with other countries offering favorable trade terms while accepting U.S. tariffs,” said Eswar Prasad, an economist at Cornell University. “However, certain provisions, such as other countries’ investments in the U.S., may look better in theory than they will in practice over time.”
Trump also faces legal challenges from states and businesses arguing that he overstepped his authority by declaring national emergencies to justify tariffs on much of the global economy. In May, a federal court invalidated those tariffs. An appeals court has allowed the government to continue collecting them temporarily and will hear oral arguments on Thursday.
And he has yet to reach an agreement with China — which has skillfully used the threat of retaliatory tariffs and restrictions on exports of rare earth minerals essential for electric vehicles, computer chips, and wind turbines to resist Trump’s demands. The U.S. and China are holding talks this week in Stockholm, Sweden.
Economists remain skeptical about the potential impact on U.S. consumers.
There is also doubt that tariffs will deliver the economic boom claimed by Trump.
Analysts at Morgan Stanley said “the most likely outcome is slow growth and persistent inflation,” but not a recession. After all, the 15% tariffs on the EU and Japan represent a modest increase from the 10% rate Trump imposed in April during a negotiation period.
While autos made in the EU and Japan will no longer face the 25% tariffs Trump had imposed, they will still be subject to a 15% tax that has not yet appeared in prices at U.S. dealerships. The administration claims the absence of price increases indicates that foreign producers are absorbing the costs, but it may simply reflect the buildup of auto inventories ahead of the tariff implementation.
“Dealers built up stocks before tariffs took effect, reducing the immediate impact on retail prices. That buffer is starting to wear thin,” Morgan Stanley noted in a separate report. “Our Japan auto analyst observes that as pre-tariff inventory clears, replacement vehicles will likely carry higher price tags.”
Economist Mary Lovely of the Peterson Institute for International Economics warned of a “gradual efficiency loss” as U.S. companies scramble to adapt to Trump’s new trade landscape. For decades, American companies have largely paid the same tariffs — often none — on imported machinery and raw materials from around the world.
Now, as a result of Trump’s trade agreements, tariffs vary by country. “U.S. firms have to redesign their supply chains and source inputs from different locations based on these variable tariff rates,” she explained. “It’s an enormous administrative burden. There are many factors that will act as long-term drags on the economy, but their effects will emerge gradually.”
Mark Zandi, chief economist at Moody’s Analytics, said that the U.S. effective tariff rate has risen to 17.5% from around 2.5% at the start of the year.
“I wouldn’t celebrate just yet,” Zandi cautioned. “The economic damage caused by higher tariffs will become more apparent in the coming months.”
— news from PBS
— News Original —
Trump is getting the world economy he wants — but the risk to growth could spoil his victory lap
WASHINGTON (AP) — President Donald Trump is getting his way with the world economy.
Trading partners from the European Union to Japan to Vietnam appear to be acceding to the president’s demands to accept higher costs — in the form of high tariffs — for the privilege of selling their wares to the United States. For Trump, the agreements driven by a mix of threats and cajoling, are a fulfillment of a decades-long belief in protectionism and a massive gamble that it will pay off politically and economically with American consumers.
On Sunday, the United States and the 27-member state European Union announced that they had reached a trade framework agreement: The EU agreed to accept 15% U.S. tariffs on most its goods, easing fears of a catastrophic trans-Atlantic trade war. There were also commitments by the EU to buy $750 billion in U.S. energy products and make $600 billion in new investments through 2028, according to the White House.
“We just signed a very big trade deal, the biggest of them all,” Trump said Monday.
But there’s no guarantee that Trump’s radical overhaul of U.S. trade policy will deliver the happy ending he’s promised. The framework agreement was exceedingly spare on details. Most trade deals require months and even years of painstaking negotiation that rise and fall on granular details.
High-stakes negotiations break Trump’s way
Financial markets, at first panicked by the president’s protectionist agenda, seem to have acquiesced to a world in which U.S. import taxes — tariffs — are at the highest rates they’ve been in roughly 90 years. Several billion in new revenues from his levies on foreign goods are pouring into the U.S. Treasury and could somewhat offset the massive tax cuts he signed into law on July 4.
Outside economists say that high tariffs are still likely to raise prices for American consumers, dampen the Federal Reserve’s ability to lower interest rates and make the U.S. economy less efficient over time. Democrats say the middle class and poor will ultimately pay for the tariffs.
“It’s pretty striking that it’s seen as a sigh of relief moment,” said Daniel Hornung, a former Biden White House economic official who now holds fellowships at Housing Finance Policy Center and the Massachusetts Institute of Technology. “But if the new baseline across all trading partners is 15%, that is a meaningful drag on growth that increases recession risks, while simultaneously making it harder for the Fed to cut.”
Watch the segment in the player above.
The EU agreement came just four days after Japan also agreed to 15% U.S. tariffs and to invest in the United States. Earlier, the United States reached deals that raised tariffs on imports from Vietnam, Indonesia, the Philippines and the United Kingdom considerably from where they’d been before Trump returned to the White House.
More one-sided trade deals are likely as countries try to beat a Friday deadline after which Trump will impose even higher tariffs on countries that refuse to make concessions.
Trump’s long-held theory now faces reality
The U.S. president has long claimed that America erred by not taking advantage of its clout as the world’s biggest economy and erecting a wall of tariffs, in effect making other countries ante up for access to America’s massive consumer market.
To his closest aides, Trump’s use of tariffs has validated their trust in his skills as a negotiator and their belief that the economists who warned of downturns and inflation were wrong. Stocks dipped slightly in Monday afternoon trading, but they’ve more than recovered from the tariff-induced selloff in April.
“Where are the ‘experts’ now?” Commerce Secretary Howard Lutnick posted on X.
But the story is not over. For one thing, many of the details of Trump’s trade deals remain somewhat hazy and have not been captured in writing. The U.S. and Japan, for instance, have offered differing descriptions of Japan’s agreement to invest $550 billion in the United States.
“The trade deals do seem to count as a qualified win for Trump, with other countries giving the U.S. favorable trade terms while accepting U.S. tariffs,” said Eswar Prasad, a Cornell University economist. “However, certain terms of the deals, such as other countries’ investments in the U.S., seem more promising in the abstract than they might prove in reality over time.”
Trump is also facing a court challenge from states and businesses arguing that the president overstepped his authority by declaring national emergencies to justify the tariffs on most of the world’s economies. In May, a federal court struck down those tariffs. And an appeals court, which agreed to let the government continue collecting the tariffs for now, will hear oral arguments in the case Thursday.
And he’s yet to reach an accord with China — which has deftly used the threat of retaliatory tariffs and withholding exports of rare earth minerals that are desperately needed for electric vehicles, computer chips and wind turbines to avoid caving in to Trump’s demands. The U.S. and China are talking this week in Stockholm, Sweden.
Economists remain skeptical of the impacts for U.S. consumers
There is also skepticism that tariffs will produce the economic boom claimed by Trump.
Analysts at Morgan Stanley said “the most likely outcome is slow growth and firm inflation,” but not a recession. After all, the 15% tariffs on the EU and Japan are a slight increase from the 10% rate that Trump began charging in April during a negotiation period.
While autos made in the EU and Japan will no longer face the 25% tariffs Trump had imposed, they will still face a 15% tax that has yet to appear in prices at U.S. dealerships. The administration has said the lack of auto price increases suggests that foreign producers are absorbing the costs, but it might ultimately just reflect the buildup of auto inventories to front-run the import taxes.
“Dealers built stocks ahead of tariff implementation, damping the immediate impact on retail prices. That cushion is starting to wear thin,” Morgan Stanley said in a separate note. “Our Japan auto analyst notes that as pre-tariff inventory clears, replacement vehicles will likely carry higher price tags.”
Economist Mary Lovely of the Peterson Institute for International Economics warned of a “slow-burn efficiency loss’’ as U.S. companies scramble to adjust to Trump’s new world. For decades, American companies have mostly paid the same tariffs – and often none at all – on imported machinery and raw materials from all over the world.
Now, as a result of Trump’s trade deals, tariffs vary by country. “U.S. firms have to change their designs and get inputs from different places based on these variable tariff rates,’’ she said. “It’s an incredible administrative burden. There’s all these things that are acting as longer-term drags on economy, but their effect will show up only slowly.’’
Mark Zandi, chief economist at Moody’s Analytics, said that the United States’ effective tariff rate has risen to 17.5% from around 2.5% at the start of the year.
“I wouldn’t take a victory lap,” Zandi said. “The economic damage caused by the higher tariffs will mount in the coming months.”