On Thursday, the United States and the United Kingdom reached a historic trade deal. This agreement is in the process of cutting the tariffs that the United States had previously placed on British automobiles and metals. This development is a huge improvement in bilateral economic ties between the two countries. The past few years have tested these connections with trade wars and tariff increases. The pact aims to deepen economic ties, but it should alleviate worries over the negative effects of such high tariffs on both countries’ economies.
The newly ratified USMCA trade agreement will remove or lower some key tariffs. The US will continue to enforce a broader 10% tariff on all UK goods. The current tariff structure is an acute example of the difficulties inherent in international trade negotiations. It brings into sharp focus the challenges both countries face in establishing a balanced, mutually beneficial trade allowance. Even with these limited tariff cuts, the US today has a more than $6 billion trade surplus in goods with the UK. This means the American exports to Britain are greater than British exports to the US.
Yet the reality of trade between the two countries, as well as the recent trend in U.S.-China relations, is still filled with danger. Current measures including tariffs exceeding 100% on many different products are seeding harmful effects on both economies. Market analysts predict that tariffs will eventually settle at about 60% if no further concessions are made in ongoing negotiations. Significantly increasing tariff rates would almost certainly increase prices for U.S. consumers. They would prevent fuller economic recovery on both sides of the Atlantic.
Both economies are in the thick of figuring all this out. Before we know it, consumer price data for April will be published. Analysts are looking for this data to start showing the bite of higher tariffs on the economy. These changes could lead to significant impacts on reductions in consumer spending and GDP impacts. Along with consumer prices, next week will see new consumer confidence data coming out. Jointly, this data will offer a clearer picture of inflation expectations and the overall state of consumer sentiment as economic conditions continue to change.
We know that most economists are judging these recent developments. They’re factoring in a one-in-three chance of an interest rate cut by the US Federal Reserve in June. If not, the weak economic growth and prospects of continued inflation uncertainty should push rates lower. This shift in direction specifically aims to address the public’s concern about tariff effects. The Federal Reserve is currently grappling with conflicting signals regarding the direction of the economy and inflation trends, largely influenced by increased tariffs on goods.
Next week, the European Commission will publish its spring economic forecasts. These predictions are intended to test the direct effects that current tariff structures have on regional economies. These combined forecasts are key to understanding larger economic trends. They could help to show how some tariffs are affecting growth across Europe.
American and Chinese negotiators are scheduled to meet in Geneva in a few weeks for discussions on possible tariff relief agreements. With a new layer of complexity, this meeting further complicates the global trade landscape. The bottom line is that countries are currently in the trenches negotiating these country-specific tariffs. These results will have a huge effect on US and UK economic fortunes – but the fortunes of their economic relationships with all their other trading partners.