Over the past six months, the United States has been tossing aside a decades-old global trading system in favor of something vastly different and largely unnecessary.
Powerful economies like the European Union and Japan have suddenly made peace with imposing high tariffs on their exports, averting a damaging trade war and yielding to President Trump’s demands to cut even more U.S. tariffs.
As major economies line up to sign deals that include the highest tariffs in modern history, the president’s vision for global trade is rapidly coming into play. This new normal uses the American economy as leverage, with other countries taking on 15 to 20 percent tariffs to do business with the United States. Even higher rates would be imposed on key exports like steel or on some adversaries like China.
The outcome seemingly vindicated Mr. Trump in his assertion that his tariff threat is a powerful bargaining tool. And the muted market reaction to the 15 percent tariffs on Japan and the European Union suggests that the panic many had hoped for from earlier, more extreme tariffs may not materialize.
Nigel Green, chief executive of the global financial advisory firm Dive Group, called the EU deal “not a solution, but a retrenchment.”
“A year ago, markets would have backed down,” he said. “Today, they’re just grateful it wasn’t worse.”
While the president’s plan for global trade now looks like a political victory, whether it will be an economic success is more debatable. The Trump administration has essentially launched a massive economic experiment, with tariffs the likes of which the United States has not seen since the early 20th century. The rates Mr. Trump is asking other countries to agree to are typically used by poorer economies to try to protect nascent industries, not industrial powerhouses like the United States.
Mr. Trump and his supporters argue that higher tariffs will encourage more companies to produce in the United States, with minimal impact on businesses and consumers. The president has also insisted that foreign governments, not U.S. businesses or consumers, should pay the tariffs, even though long-standing research shows that Americans will ultimately bear the brunt of the losses.
Clyde Prestowitz, a former U.S. government official and founder of the Economic Strategy Institute, said Mr. Trump’s America had “a lot in common” with the United States before 1946 and other countries, such as China, that built their economies using so-called mercantilist policies, using protectionism to try to accumulate trade surpluses and wealth.
“It worked for England, the United States, France, the Benelux, Germany, Japan, Korea and everyone else who got rich,” Mr. Prestowitz said.
But many economists continue to predict that Mr. Trump’s tariffs will lead to higher prices for both businesses and consumers that import goods. They expect it to slow the economy and at least partially undermine the president’s efforts to boost manufacturing.
In recent weeks, automakers such as General Motors and Volkswagen have reported losses of more than $1 billion from the tariffs.
“What gets lost in translation is that even with these deals cut, the final tariff rate is likely to be closer to 20 percent, which is much higher than the 3 percent level,” said Diane Sonck, chief economist at KPMG.
While people had hoped the economic impact of the tariffs would be “immediate,” Ms. Sonck said their rollout has been uneven, with many stops and starts, and the impact on supply chains is taking time to work out. Economic studies have shown that the full impact of tariffs takes six to 18 months to show, he said, and Mr. Trump’s first-term trade war with China, which began in 2018, did not cause manufacturing weakness until the following year.
Brad Setser, an economist at the Council on Foreign Relations, said he believes the tariffs are “large enough to slow the economy” and “a meaningful change in policy that I think most Americans will feel.”
But he cautioned that the tariffs are unlikely to be significant enough to push the U.S. economy into recession, and that the price increases for consumers “will be large enough to be noticeable but not a huge shock.” Mr. Setser said the fallout would be felt by buyers of small appliances, clothing and toys, because many Asian countries that make these products have imposed tariffs of 20 to 30 percent.
“This is a policy that will slow the economy in most models, not stop economic growth,” he said.
Some analysts have argued that the recent deal announcements were positive because they have averted, at least for now, the prospect of a trade war with major trading partners, but others have said the agreements offer limited economic benefits beyond that.
Former US trade negotiator Stephen Olson called the US-EU deal “highly protectionist and unapologetically commercial” and said the European Union “played as badly as it could have played.”
“The EU sees the value of a healthy, strong and open North Atlantic trading relationship. President Trump doesn’t,” said Mr. Olson, a senior visiting fellow at the ISEAS-Yusuf Ishaq Institute, a research institute in Singapore. “When we assess what we know about the deal, it’s fair to say it could have been worse, but it’s not a very strong endorsement.”
Mr. Trump’s efforts to reshape the global trade map are far from over. As of Friday, the deadline to reach an agreement, his administration had not yet clarified what tariff rates would apply to dozens of countries. Trading partners that account for 56 percent of U.S. imports, including Canada, Mexico, South Korea, Brazil and India, have yet to sign the initial agreement, according to tracking by Goldman Sachs.
Analysts say that, with the threat of new tariffs and a tendency to renegotiate agreements he himself has signed, the deals that Mr. Trump has made are likely to fall apart quickly. U.S. officials have indicated that they expect to impose new tariffs on semiconductors and pharmaceuticals in the next two to three weeks, which could further alter trade and anger some trading partners.
As a large and diversified economy, the United States is generally less dependent on trade than other countries. Trade generates about a quarter of U.S. economic activity, while Mexico and Canada account for more than two-thirds. In Canada, analysts say, the U.S. tariffs could trigger a recession that could last until 2025 unless a deal is reached with the United States.
But the impact of the tariffs is still spreading through the U.S. economy, raising costs for businesses and consumers. That leaves businesses with less money to spend on hiring, expanding and innovating, and slows consumer spending, the real driver of the economy.
Economists also doubt that these trade deals will achieve one of Mr. Trump’s most important goals: reducing the country’s trade deficit, which he sees as evidence that the United States is being cheated.
Mr. Setser said that tariffs could reduce or increase trade deficits with individual countries, but he expected the tariffs to have little impact on the overall U.S. trade deficit, unless they hurt the economy and reduce consumer spending.
Maurice Obstfeld, a senior fellow at the Peterson Institute for International Economics, who has argued that the trade deficit is more determined by factors such as the savings rate and government spending, also said he expected the tariffs to have little impact on the overall U.S. trade deficit.
“I doubt these agreements will materially reduce the U.S. trade deficit, especially since the Trump administration has passed a fiscal bill that sharply increases the federal budget deficit in the near future,” he said.