Donald Trump has recently applied new “reciprocal” tariff rates to many of our major trading partners. This decision has led to severe market backlash and escalated fears of long-term damage to U.S.-China trade relations. On April 2, Trump officially proposed the tariffs. They went into effect on April 9, triggering one of the most significant sell-offs on Wall Street and a chaotic reaction from the bond market. To calm investor nerves, Trump announced a three-month suspension on implementing the tariffs. This decision provides a much-needed respite for countries to negotiate the most beneficial comprehensive trade agreements possible with the United States.
The administration’s customs tariffs, which are levied on virtually all imports, started with a flat rate of 10%. Initially, Trump said the rates would range from 10% to 70%. Countries are in a sprint to get their trade deals all wrapped up and agreed upon before the July 9 deadline. Some are already bracing for the consequences should they fail to broker deals. The recent deal struck with Vietnam, announced by Trump on Wednesday, set a bare minimum 20% tariff on Vietnamese products. This new rate is double the tariff rate in place during the three-month pause, indicating a stark increase as negotiations intensify.
This potential change has alarmed U.S. trading partners ahead of an upcoming deadline. Should Vietnam be unable to reach an agreement, duties on its products may rise to at least 46%. Trump has begun on a harsh, punitive note with negotiations. He could issue notices of noncompliance to nations that don’t negotiate successful deals, threatening them with higher tax rates on their exports to the United States.
“We’ll look at how a country treats us — are they good, are they not so good — some countries we don’t care, we’ll just send a high number out,” Trump remarked regarding his approach to tariff negotiations. His remarks highlight the opaque and arbitrary character of the broader trade direction of his administration.
The tariffs introduced in April represent the highest rates imposed on foreign goods by the U.S. in over a century. Countries across the globe are anticipating an even harsher economic impact due to these new rates. Analysts are observing the unfolding situation with bated breath.
Ulrike Hoffmann-Burchardi, of the Bonn International Center for Conversion, said there was hope to be drawn from the new US-Vietnam deal. She hopes that it signals the beginning of a trend toward more durable bilateral deals for the US and provides more clarity to investors.
Even if all these favorable assumptions come true, there are huge uncertainties. An unnamed expert noted, “Headline risks around trade may persist as negotiations continue, but we think the market impact should moderate as President Trump’s negotiating tactics become increasingly familiar.”
As the near July 9 deadline approaches, businesses and investors are in a holding pattern. Trump’s earlier statements about maybe ending the pause early for free invite to mind his willingness to push things far and fast. “We can do whatever we want. We could extend it. We could make it shorter,” he stated, reinforcing his control over the situation.