by Adam Hodge
Since “Liberation Day”, when President Trump shocked the world by announcing higher tariffs on countries (and penguins) that sent markets into turmoil, his administration has talked about striking dozens of trade deals with its biggest trading partners – the U.K being most anticipated.
Most trade watchers were however deeply sceptical that any ‘deal’ would provide the kind of broad-based tariff reductions that meaningfully change fractured global trade relationships.
The first Trump administration tried, but ultimately failed, to negotiate a free trade agreement with the UK so it’s not surprising that Britain was first out of the gate. The framework announced last week picks up where the previous negotiations left off, but despite the pomp and circumstance, it’s important to note that all we have today is a framework.
Finally, we got a first look at what those deals could look like. Though far from a final deal, it provides a glimpse into what the administration’s broader trade strategy might be moving forward and most crucially the U.S.–UK. framework released marks the first real movement since the tariffs were announced on 2nd April.
Still, as ever, the details will determine whether this is a breakthrough or just political theatre.
Three Takeaways:
- The 10% tariff baseline remains. That means most goods traded between both countries will still face higher tariffs, and the President has signaled that he doesn’t intend to budge on that front
- Agriculture was the early winner. The UK agreeing to buy more ethanol and open access to U.S. beef will give some relief to American farmers who are losing market access in other countries, most notably China
- Steel and aluminum may finally get clarity. The steel and aluminum framework announced last week picks up where negotiations during the Biden administration with the EU and the UK broke down. There is bipartisan support in Washington, and across the Atlantic, for tackling distortions in both of those key markets and a deal could be reached in the next several months
What should companies do?
Companies navigating the current moment should study those that have struck the right balance in messaging and strategy. Ford Motor Company stands out for deftly navigating this moment with style and grace. The company, led by CEO Jim Farley, has been blunt about the potential harm to Ford’s business from tariffs on Canada, Mexico and other foreign countries. Importantly, the criticism has not targeted the President or the White House explicitly, and Ford has likely used its internal team to communicate directly with the Trump administration before going public, to avoid any surprises.
At the same time, Ford has also launched a smart media campaign touting the company’s legacy as a proud American brand, committed to building and investing in American manufacturing and American workers. Major pharmaceutical companies like Bristol Myers Squibb and Eli Lily & Co, which dread the pain from major tariff hikes or hits from the tax negotiations on Capitol Hill, have taken pains to announce plans for multi-billion-dollar investments over the next four years. Naturally, the White House took credit for those investments and the pharmaceutical industry is hopeful to avoid additional trade pain.
The lesson learned? Before companies start swooning over the first deal, they should find creative ways to tell their story that supports the messages they are delivering directly to the White House. Tout commitments to U.S. production while also speaking honestly about the potential harm to the bottom line.
What else should you know?
There are a few important developments worth highlighting after the first 100 days of Trump’s second term.
- Despite a lot of drama and chaos, the President tends to walk back his tariff threats after markets flash red. This pattern happened repeatedly in the first Trump administration, and we’ve seen the sequel play out so far. With pain about to really sink in, store shelves starting to thin, and farmers sitting on crops they can’t sell – so expect the Administration to roll back the tariffs even further. That said, the damage from these short-term escalations could still have long-term consequences
- Congress is racing against its own clock. Republicans are scrambling to pass their massive “beautiful” bill to cut taxes, increase defence spending and slash spending for popular programmes like Medicaid before the self-imposed 90-day deadline after the Liberation Day fallout. Let’s not forget that during the first Trump administration, the “tax tradeoff” happened in reverse. Back then, companies could swallow the tariffs because they were already benefitting from the tax cuts. This time, tariffs are taking a bite out of profits and many small businesses are under siege before they realise any benefit from lower taxes
- China remains the elephant in the room. The 145% tariffs on Chinese goods remain and China’s retaliatory tariffs on U.S. goods are beginning to bite. So, it’s no surprise that talks with China are kicking off this week and Trump has signalled a willingness to reduce tariffs to 85 per cent (still remarkably high). It will still likely be many months before we get any clarity on the China-U.S. trade relationship
Now is the time to engage
Whether you’re leading a business, advising on policy or managing investments, make sure you have a seat at the table. Connect with trade advisers, update your risk outlook and take a hard look at your supply chains. Most importantly – don’t wait for the next headline to force your hand.
This moment isn’t a finish line. It’s a pivot point.
