President Trump’s self-imposed 90-day pause before he raises “reciprocal” tariffs through the roof expires on Wednesday, July 9. Only most of it may not expire at all. On Monday, Trump sent letters to a dozen countries like Japan, South Korea, Malaysia, South Africa and others, following through on a threat of imposing unilateral tariff rates… but only if no progress is made by August 1.
In the meantime, Trump and his negotiators are working with major countries for various concessions in exchange for more moderate tariff hikes. For instance, Trump threatened Canada with higher tariffs, unless Canada rescinded its Digital Services Tax on Big Tech companies. On June 29, Canada caved. This was both Trump’s favor to the Big Tech platforms and an IOU he can call in.
A baseline tariff rate of 10 percent has been in effect since early April, with 25 percent on cars and 50 percent on steel and aluminum, and far higher rates threatened. Trump has announced a deal with Vietnam for no tariffs on U.S. exports, while Vietnamese exports to the U.S. will face a 20 percent levy. That was a decline from the 46 percent tariff on Vietnamese imports he first proposed.
This week, Trump is negotiating deals with the European Union, China, and India, among others. If negotiations are pending, he will probably offer further extensions. Supposedly, the general increase in tariff levels, even with some moderation in exchange for concessions, will be good for the U.S. economy. We should question that.
First, the Trump administration says that the tariffs will bring in revenue to offset the increase in the national debt from the budget bill. Tariffs have brought in about $100 billion so far this year, serious money but far less than the costs of Trump’s budget bill.
And, they say, the tariffs will promote reshoring, as manufacturers can produce more cheaply at home without having to pay tariffs. In particular, tariffs will reduce imports from China.
However, producers have been reporting that the sheer uncertainty created by Trump’s on-again, off-again tariff threats has reversed gains, by making it much harder for domestic producers to plan. Why would you commit to disrupt supply chains and build a major new factory if you have no idea what actual tariffs will be in a year or even next week?
Weakened support for solar is a huge favor to China, which dominates global solar production.
According to an April CNBC survey, about two-thirds of the 380 companies surveyed reported that building a new domestic supply chain would at least double their costs. Sixty-one percent said it would be more cost-effective to relocate from a high-tariff country to a lower-tariff one.
Moreover, the promise of more domestic production and more jobs induced by higher tariffs has been blown away by another Trump policy: his determination to destroy the renewable-energy sector in favor of fossil fuels. Thanks to President Biden’s industrial policies, this was the one sector where new investment in domestic production was generating serious numbers of jobs, both in new plants and in construction. The budget bill just enacted by Congress, which massively increases tax subsidies for fossil fuels and weakens support for solar, wipes much of that out.
The Solar Energy Industries Association estimates new solar manufacturing investments of $45.8 billion in the U.S. since passage of the 2022 Inflation Reduction Act. SEIA reports that $9.1 billion of these new facilities are operational, while $15.6 billion are under active construction, and another $21.1 billion in manufacturing investments is in development. It’s not clear how much of the new plans will be thrown into disarray, though one last-minute change in the budget bill actually increases the tax subsidy in the companion CHIPS Act.
Weakened support for solar is a huge favor to China, which dominates global solar production. Containing China is supposedly a Trump priority, but his several China policies are contradictory and self-canceling.
ON THE OTHER HAND, BECAUSE THE WORST of Trump’s tariff threats keep being delayed, the damage has not been as severe as some predicted—not yet, anyway. GDP growth and job creation have pretty much followed the trend that Trump inherited.
Tariffs are taxes. Serious tariffs would increase consumer prices, but since Trump keeps kicking the can down the road, inflation is up only modestly. The May Consumer Price Index increased at an annual rate of just 2.4 percent, and only a small part of the increase has been caused by tariffs.
Why? Because importers took advantage of Trump’s 90-day pause to build up inventories and are substantially selling out of that inventory, which paid no tariffs. Once the tariffs bite, economists think this will change for the worse.
Wall Street evidently doesn’t believe that Trump will launch a full-blown trade war. With investors playing the TACO trade, the stock market is now at record highs.
Even so, the Yale Budget Lab calculates that consumers now face an overall average effective tariff rate of 15.8 percent, the highest since 1936. This is a pure tax, which will add 1.5 percent to the inflation rate, and it could go higher.
The Federal Reserve agrees that Trump’s tariffs will eventually boost inflation. This has dissuaded Fed Chair Jay Powell from cutting interest rates, enraging Trump.
Goldman Sachs economists forecast that Trump’s tariffs could shave half a point off GDP growth by raising consumer and producer prices, dissuading the Fed from reducing interest rates, and creating uncertainty that delays business investments.
The details of a U.S.-China reset are complicated, and China, with a serious long-term strategy, has the stronger hand. Trump just doesn’t have the attention span for that detailed diplomacy.
While he is supposedly working on the details of more consequential matters in the U.S.-China relationship, his main priority in recent days has been to cut a special deal to deliver TikTok to a U.S. buyer. In 2024, Congress, citing national-security concerns, passed a law requiring that the app be banned in the United States unless its Chinese parent company, ByteDance, sold it to a non-Chinese company within nine months.
But when he took office, Trump (illegally, I might add) directed the Department of Justice not to enforce the law for 75 days while his administration reviewed it. This is classic Trump, where one policy cancels out others. Getting China to approve his deal will consume some leverage with Beijing that Trump needs for far more consequential issues.
In sum, Trump’s massive tariff offensive is a sugar high for our Dear Leader. It will do little for U.S. manufacturing, raise U.S. inflation rates, and increase China’s dominance in key emerging technologies.