Let’s Make a Deal

The arrival of the August 1 trade deal deadline impels me to comment on how it all turned out. The truth is that it’s too early to say how it all turned out, largely because it is clearly not over yet. Some large countries got extensions—Mexico and China. Countries that have a trade deficit with the United States got 10 percent tariffs; those with which the United States has a small deficit got 15 percent. There were a few victims, both expected, like Myanmar, and unexpected, like Switzerland and Canada. For those who made deals, the torture will continue. None of these deals are trade agreements in the traditional sense. They are outlines or frameworks that contain a few topline commitments, some promises to work out specific unresolved issues in the future, and a whole bunch of items not mentioned at all. These gaps fall into three categories. Keep in mind that there still is only one actual text made public—the UK agreement, which consists of six pages. Some of the others have a summary statement from the White House, and some simply have a comment from Trump or one of his cabinet members.

First are the items that were ostensibly agreed to, but where the two countries provided contradictory descriptions of the deal. A good example is the status of steel tariffs in both the UK and the EU agreements. The Trump administration seems to believe that it made no concessions in this area except to lower the steel tariff for the United Kingdom from 50 percent to 25 percent. The European Union will pay the full 50 percent. The United Kingdom believes, however, that the United States committed to a further adjustment of the steel tariff pending subsequent discussions on national security. Similarly, the European Union believes that it will receive a tariff-rate quota on steel that will provide it with partial relief from the 50 percent tariff.

That is not the only discrepancy. In the case of Indonesia, the Trump administration indicated all U.S. products would enter Indonesia duty-free, while the Indonesian government said that would apply only to those items that do not compete with Indonesian products. That is not a small difference. In the case of South Korea (ROK), the Trump administration said the agreement provides access to South Korea’s agriculture market, including rice. South Korea says there is no increase in rice or beef imports. So far, each agreement appears to have some different interpretations, all of which will eventually have to be resolved.

The second category is the topics that were punted. The EU deal, for example, has nothing to say about its Digital Market Act or Digital Services Act, or other aspects of digital trade regulation. It appears that in several of the agreements, there are unspecified exceptions to the tariffs. Some are spelled out, as with civil aircraft in the case of the United Kingdom and the European Union, but others are not clearly stated or are perhaps just figments of the other country’s imagination. Another example is the funds promised for investment in the United States. Do those numbers represent new money, or do they include investments already announced or even already made? In the case of the European Union, European Commission President Ursula von der Leyen noted that the European Commission cannot compel private parties to invest; it will be up to them to decide what to do. Finally, it appears that in the U.S.-ROK agreement, digital services, currency manipulation, and ROK restrictions on China, all U.S. priorities, were not discussed.

The third category is “moving the goalposts”—items where the Trump administration will come back for a second bite. That list is unknown, at least to the public, although one obvious candidate would be the United Kingdom’s digital services tax, which mysteriously was not addressed in the current agreement, even though it has been a top priority for the Trump administration.

This may end up being the largest category. Countries have sought assurances that this won’t happen—that an agreement, once made, will stay made—and it appears the administration has refused to give that assurance. The fact that many Section 232 investigations underway are likely to lead to tariffs, if they haven’t already been imposed (i.e., steel, aluminum, autos, and copper), makes clear that none of these agreements are really final. For our large trading partners like the United Kingdom, European Union, Japan, and South Korea, additional tariffs on semiconductors, pharmaceuticals, trucks, and aircraft—all currently under investigation—would have a big effect on their economies. In some, but apparently not all, cases, the administration appears to have promised not to “stack” any additional tariffs on these sectors on top of the tariffs already agreed to. In the absence of an actual text to review, it is difficult to know if that is true. If it is, that would be good news, although it is also important to remember that these agreements are not binding and not legally enforceable. That will advantage the United States. Other countries can cheat at the risk of additional tariffs. The United States can move the goalposts and make additional demands with impunity. So, whether the other country chooses door number 1, 2, or 3, it may not matter. There is an unpleasant surprise for them lurking behind each one.

William A. Reinsch is senior adviser and Scholl Chair emeritus with the Economics Program and Scholl Chair at the Center for Strategic and International Studies in Washington, D.C.