Markets seemed to take with cautious optimism the announcement on Thursday that the US and the UK had reached a deal on trade. It’s perhaps best described as a framework agreement, as the 10% blanket tariffs will remain in place pending further negotiations. The leaders of both countries hailed the agreement as substantial. And markets did bump higher in the immediate wake of the announcement, before retreating after more details became available.
US President Donald Trump was quick to point out that the deal with the UK shouldn’t be seen as a model for other agreements. Then he added something that made markets nervous: That the 10% was a baseline, and other countries would see larger tariffs. But, in his fashion of providing mixed signals to the market, later Trump suggested that tariffs on China could come down after both countries’ representatives would meet over the weekend.
What’s Really Going on With Tariffs?
Given the volatility in the markets around everything tariff related, the million dollar question is what’s actually going to happen with the trade war. There are both positives and negatives in this UK-US deal that provide clues about what might be expected.
On the one hand, reaching a deal with the UK is probably one of the easiest to do, given the affinity between the countries and the US having a trade surplus with Britain. Which suggests that reaching deals in the 90-day window might be a severe challenge, since it took exactly a month to conclude the “easiest” negotiation. Presumably the deal with Canada should be really easy for similar reasons, but after Prime Minister Mark Carney met with Trump on Wednesday, there seemed to be no progress there, either.
The Big Deals Are Still Ahead
As if to underscore that, the EU announced it had concluded a list of €100 billion in US goods to tariff in the event of not reaching a deal. Which means negotiations could go on past the June 8th deadline when the pause on “reciprocal” tariffs ends. Although Trump has signaled he’d be willing to extend the pause.
All of this adds to the uncertainty that markets generally don’t like, keeping up appetite for safe haven assets. Traders are likely looking for a more substantial agreement, such as with the EU or China, in order to fully feel relieved. But, even then, there are still other trade issues pending. That includes studies on adding tariffs to semiconductors and pharmaceuticals, lumber, copper and trucks.
China Avoids Tariff Effects
The main issue for the weekend will be the sit-down between high-level representatives between US and China in Switzerland to get some progress on a deal. US Treasury Secretary Scott Bessent is expected to be there. The US has argued that the tariffs between the countries are “unsustainable”, but the recent trade data from China shows that the US might not have as much leverage as initially thought.
While China’s trade surplus declined slightly to $96.1 billion, it was still well within prior months’ readings. And exports still surged by 8.1% (instead of the -2.0% expected), as it appeared Chinese exporters were quick to find new markets for their products. Regardless of the economic pressure, what exactly will be agreed on seems to depend in part on Trump’s mercurial nature and what he believes he can call a “win”. Which could mean a deal with China is closer than what many analysts suspect.
