What Might the Latest US Tariff Deals Mean for Other Trading Partners?

On May 12, the United States and China announced a 90-day “truce” in ongoing trade disputes, reaching a deal that substantially but temporarily brings down tariffs from record-high levels. Both countries will significantly reduce their minimum tariffs on each other. Similarly, just several days earlier, the United Kingdom reached a far narrower agreement with the US for it to lift some tariffs.

Those two deals send strong signals concerning how other countries’ negotiations with the Trump administration may evolve in the coming weeks.

First, the deals with China and the UK signal that tariffs on imports to the US will not likely go away entirely. In both cases, a baseline 10% tariff on imports is in place, which may now be the minimum rate the administration will accept. (China currently faces a base 10% rate plus a 20% tariff associated with US efforts to combat China’s role in fentanyl trafficking.)

Furthermore, a 10% baseline tariff on nearly all trading partners signals that the administration is considering tariffs as a source of long-term government revenue, making it likelier that they will remain in place. This was made more evident over the past week, with administration officials working on tax bill negotiations and suggesting that tariff revenue will offset some of the costs from tax cuts.

Second, the US-China deal puts more pressure on other countries to negotiate with the US before the end of the pause of the April 2 tariffs is reached. Ultimately, the two deals signal the Trump administration’s willingness to negotiate. If the 10% rate now applied to most US trading partners (including as the base of the now-lowered China tariffs) is a new floor, trading partners are incentivized to reach deals as close to that rate as possible. They will aim to secure a lower rate than those initially announced on April 2, which in many cases are higher than the 10% “paused” rate that replaced them on April 9, and other deals for specific categories of goods (e.g., automobiles, metals, semiconductors, etc.).

For some trading partners, reaching a deal to keep the 10% rate will be existential, as many exporters to the US (e.g., Bangladesh, Indonesia, Vietnam, etc.) were threatened with rates above the 30% rate now applied to US imports from China. The table below (left) highlights some countries facing higher tariff rates than China (30%) if rates returned to those proposed on April 2. Furthermore, it’s possible that, over time, the 20% tariff related to fentanyl trafficking will come down, making Chinese goods more competitive relative to those from a broader range of countries. The table below (right) highlights the countries that would be most negatively impacted if the total tariff on China fell below 30%.

Tariff rates on top US trading partners: Threatened April 2 & current rates

Finally, given the above, the US-China deal raises significant questions regarding the trajectory of US trade policy and the administration’s motivations. The answers remain highly unclear but will determine how policies evolve going forward. More insights are likely to emerge over the coming days and weeks.

If the administration’s primary focus is China, other US trading partners may find it relatively easy to strike deals with the Trump administration. Maintaining higher tariff rates on other trading partners will do little to disincentivize trade with China and give China fewer reasons to make concessions. However, it seems increasingly that the administration’s focus is no longer on punishing China and is working to accelerate decoupling. Instead, the administration has shifted toward addressing trade imbalances with all trade partners and raising government revenues through tariffs. As such, US trading partners face more pressure to negotiate deals and make larger concessions so their economies and exports can stay competitive with China and other markets.

Ultimately, while there remains significant uncertainty around how US trade policy will evolve and which countries will be the first to reach deals with the Trump administration, the signals sent by the first deals reached indicate that pressure on US trading partners to secure deals will increase and that a minimum tariff of around 10% is likely to stay in place for the foreseeable future. Moreover, additional trade disputes between the US and its trading partners that result in new tariff threats and duties targeting specific sectors remain likely. As such, the path ahead for global supply chains is highly uncertain and bears significant potential for disruption. It’s time to plan accordingly.

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