A Thaw in the Trade War as the U.S. and U.K. Make a Deal
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How goes the trade war? Signs of a thaw emerge as Donald Trump and Keir Starmer, the British prime minister, announce a trade pact, at least the framework of a trade pact, between the United States and United Kingdom. How good is the deal and what does this mean for the United States?

for the future trade deals that Donald Trump is promising. That's our subject for today on Potomac Watch. I'm Paul Gigot, the editorial page editor of The Wall Street Journal, and I'm here with my colleagues, Kyle Peterson and Alicia Finley. Well, the first big breakthrough today, how big is the question mark, but it's a breakthrough of sorts on the many trade deals that Donald Trump has been promising after he paused his so-called Liberation Day tariffs.

that he imposed on April 2nd and that caused so much distress in the financial markets. He announced a 90-day pause on those reciprocal tariffs after the revolt in financial markets.

And this is the first fruit of that pause. Let's listen to Keir Starmer, the British PM, talk about the deal on a call with Donald Trump. This is going to boost trade between and across our countries. It's going to not only protect jobs, but create jobs, opening market access. And as you say, Donald, the timing couldn't be more apt.

because not only was it 80 years ago today that victory came for Europe after and at the end of the Second World War, but it was on that day the UK and the US stood together as the closest of allies.

Well, Keir Starmer has been under economic and political pressure in the UK, so he's clearly enthused about this. Britain is the 11th largest U.S. trading partner. It accounted for about 2.9% of total U.S. trade in the first quarter.

So not the biggest trade deal possible, but it is some progress, Kyle. Yeah, and I think that's the underlying message here is that any deal with the UK, which is a very similar economy with a lot of historic ties with the United States, is better than no deal. But one key line in the White House fact sheet that has been put out here is it says the reciprocal tariff rate of 10 percent, as originally announced on Liberation Day, is in effect.

So the president is not lifting that baseline 10% tariff on imports from the United Kingdom. And so we are still working through the details of what is going to be in this actual trade deal. Some tariffs being lowered on automobile imports from the United Kingdom, for example. Many questions still outstanding. So here's a quote from Trump today. He says, the final details are being written up in the coming weeks.

And the difficulty is that with trade deals, the devil is in those exact final details. So the president's citing the devil too? Are you citing the devil? I am citing that because that's where trade issues really get bogged down because

because there are protectionist policies that countries have. The United States and the United Kingdom have long had disagreements about United States chicken production that is often washed in a low concentration chlorine water in order to help sanitize it. And farmers in the United Kingdom don't want those chicken imports as competition. And so that is where these trade negotiations often get bogged down is in those exact details of what

products are going to be allowed under what standard? So this isn't going to zero tariffs, as some of Trump's supporters have suggested. The 10% tariff is actually now going to be applied, I think it's fair to say, Alicia, across the board in all countries. Trump isn't going to back down on that. And that, it's important to say, is still four times the average tariff rate that prevailed before Trump took office. It was 2.4%.

on average across the world. Now it's going to be 10%. That's a pretty big increase on what is 11% of the US economy, which is the amount of traded

goods. But this deal will cut down the tariff on steel and aluminum, not 25%, maybe as low as zero. And on cars, it'll go from 25% on UK cars, 100,000 of them, down to 10%. What do you make of this overall deal? Well, I think what's most important is that the administration appears to be interested in claiming a trade victory, regardless of the details of the

You mentioned the steel and aluminum tariffs. The outlines suggest that they're going to go down from zero, from 25%. So this would be a victory for the UK. The auto tariffs, which, by the way, didn't exist or weren't imposed on British cars or any cars until Mr. Trump did a couple months ago, those will go down from about 25% or 27.5% because they're 25% plus the 2.5% previous tariff that had applied. And those will go down to 10%.

We don't actually import that many cars from the UK. They're mostly high-end cars like Bentleys and Rolls Royces and such. So this isn't going to make a huge impact. But I think the bottom line is that the Trump administration appears to be interested in at least cutting deals and claiming a political victory, which suggests that maybe with other countries he'll do the same.

We're going to take a break. And when we come back, we'll talk more about the big trade deal between the U.S. and U.K. when we come back. I'm Kim Strassel from the Wall Street Journal editorial board. And you may know me from my weekly column, Fox News, or the Wall Street Journal's daily podcast, Potomac Watch. I'm excited to tell you that my own weekly podcast, All Things with Kim Strassel, has its very own podcast feed, one that I'm really hoping that you'll hit the button and subscribe to.

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Welcome back. I'm Paul Gigo on Potomac Watch, our daily podcast of the Wall Street Journal opinion pages. I'm here with Alicia Finley and Kyle Peterson. One of the minor ironies here is that the United States actually has a surplus with Britain. Of course, the president has justified his tariffs across the board because they're saying people, countries are ripping us off because they're

We have trade deficits with them. Does this mean that we were ripping off the British, Kyle, for all these years, but yet we're gonna impose a 10% tariff higher than we did on a surplus country? The illogic, economic illogic of the president's arguments here sometimes are hard to keep track of. But let's say this, markets are relieved. You know, financial markets have reacted well. And I think the more the president walks back

the tariffs that he announced to such a negative reaction on April 2nd and before. The better off markets seem to take it.

I think that's true. But the thing to keep in mind is the effect of framing here, because it is remarkable how much he has moved the debate when a 10% baseline tariff on a huge trading partner like the United Kingdom is taken by the markets as a sign of relief that he won't go through with the reciprocal tariff nightmare of maybe 20% or 30%.

And so I think that he is responding to that market turmoil clearly. I think it's good that he is responding to that. It suggests that there is still some rational advice that is getting to the president on this trade issue where he has so many instincts that I think are

damaging and contradictory often because sometimes he talks about the tariffs as a great way to raise government revenue. Maybe we can replace the income tax with it. Sometimes he talks about rebalancing trading relationships. But as you know, the U.S. has a

trade surplus in goods with the United Kingdom. So it's hard to figure out how that makes sense. I think it's still worth stating that even if this deal goes through, even if it is as good as President Trump says it is, we will still have trading terms with the United Kingdom that are probably less favorable than they were three months ago before President Trump took office. The negotiations, Alicia, for a British and U.S. trade deal have been going on for many, many years.

There was a negotiation in the Biden presidency. There were some preliminary talks going back into the first Trump term. So some of the spade work here has been done. And in many ways, because of the compatibility of the two economies, this might be the easiest trade deal to get and probably explains why it is the first one that Trump is announcing. What do you think? I think that's right. Actually, I'd say that Catherine Tai, the Biden U.S. trade rep,

really dropped the ball on this. They didn't really seek to advance the trade deal. The negotiations did start under President Trump during his first term. They really weren't interested in cutting any trade deals, especially because there was actually much more trade between the UK and the US in digital services and services more broadly than actually in goods. In goods, right.

Crucial point, crucial point. And the Biden administration, actually, this was a big issue. They weren't interested in an expanding digital trade and they wanted to put up barriers in that. And they also sought to do that in the World Trade Organization and actually renegotiate some other trade agreements to increase the digital. And when I talk about digital trade barriers, I mean cross-border traffic flows in terms of data and that, you know, requirements that all data be hosted on U.S. servers and those kinds of things.

There's also some IP issues. But I think more broadly, as you say, this is a really easy trade deal to make because there's so much in terms of manufacturing equipment, jets and parts that go back and forth between the UK. I mean, this is a big benefit to Boeing, which actually imports a lot of kind of parts from the UK. Supposedly from the trade deal provisions, the UK will agree to purchase $10 billion in Boeing jets. Now that might have been already in the works anyways.

But this will actually just really benefit a lot of U.S. companies. And the agriculture component of this is said by the Trump administration to have a big benefit for the U.S. in terms of ag exports, which are always an issue in European countries because of their strong political base of traditional farming practices.

So maybe that's a breakthrough. I mean, Keir Starmer was saying to British media that maybe we're not going to make any progress on chlorinated chicken or certain kinds of beef. So these details will have to be worked out too, Kyle. Right. And there's no safety issue with the chlorinated chicken. I think that that's a purely protectionist stop to agricultural and farming interests in the United Kingdom.

We have to wait and see what the details of those pieces of this trade agreement are. There is no mention of chicken as I'm seeing it in the White House press release, which is notable on this. There are a couple lines about beef. There's this quote from President Trump saying that this deal will allow for increased market access for American exports, especially in agriculture, dramatically increasing access for American beef, ethanol, and virtually all of the products produced by our great farmers.

But again, the devil is in the details on that. One of the arguments about beef has been hormone treatments that are allowed in the United States that are not allowed in the UK. And again, I think that that's not a safety issue. It's something to do with the fact that UK farmers don't want that competition. And it would be a big deal if Trump, as part of this deal, can get that barrier removed. But I think we're still waiting to find out if that is actually going to be in this agreement. We're going to take another break. And when we come back, we'll talk about the prospect of

trade deals with other countries in the world when we come back. Isn't home where we all want to be? Reba here for realtor.com, the pros number one most trusted app. Finding a home is like dating. You're searching for the one. With over 500,000 new listings every month, you can find the one today.

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From the opinion pages of The Wall Street Journal, this is Potomac Watch. Welcome back. I'm Paul Gigo here on Potomac Watch with Alicia Finley and Kyle Peterson. I think the key political point to recognize here is that this is the president walking back from April 2nd. This is not somehow the way it was planned. This is not the

the way that, okay, we'll impose all of these tariffs across the board, Alicia, and then the markets will blow up. Oh, and then we'll come around to doing these details. This is improvisational deal-making because

the April 2nd tariffs blew up the markets so much. Because remember, Howard Letnick, the Commerce Secretary, Peter Navarro, Trump's main trade advisor, said at the time, there will be no exceptions, no changes to these reciprocal tariffs. And suddenly, the dangers of a real bond market implosion and the equity markets took a head or

There was real concern, and Treasury Secretary Scott Bessant pulled Trump aside when Navarro was out of the room, according to Wall Street Journal reporting.

and got him to go and do the pause on the reciprocal tariffs and talk about the negotiations. Of course, the president ever since has been saying, "Great, big, beautiful deals. We'll get them." And this is the first. And let's take a listen to Donald Trump talk about a potential deal with the European Union. - We intend to make a deal with Europe. We have found that the European Union treated us extremely unfairly, very difficult.

and hurt themselves in doing so. And they very much want to make a deal. We'll be dealing with them. We are dealing with them currently. So that'll cover pretty much the rest of it. But this was separate because of Brexit in particular. You know, this was a separate, a separate deal.

So the European Union going ahead, although the European Union has laid out a potential retaliatory list of tariffs if the deal does not come to fruition. And how do you think these other deals are going to go, Alicia? Will they go as smoothly as the U.K.?

Well, I think so for a lot of the U.S. allies, at least, you know, Japan, South Korea, India. I think you're going to try to see a lot of face saving from the administration. You mentioned the market tumult, which continues and the uncertainty will continue to be a drag, though I think at least Trump's

interest in cutting deals is laying markets concern that this is these will be permanent. You heard Pete Navarro a month or so ago saying this isn't a negotiation. This is an emergency caused by the trade deficit. That was the initial pretext. And I would just point out that now that the US is cutting a deal with UK, that further undermines its argument that there is an emergency and will probably undercut its legal argument in court.

I think there's a lot of ways that you could see the deal playing out with Japan, South Korea. They agreed to buy more oil in U.S. to provide natural gas, which they were already going to. In India, maybe they reduced their tariffs on Harley-Davidson's, which has been a point of issue or a point of concern.

Now with China, I think that's the bigger question. One of our biggest trading partners in trade has kind of ground to a halt with China because of the 145% tariffs on Chinese goods. Now Trump has imposed numerous exemptions to that, most notably for the iPhones and some of laptops and electronics. And now China is starting to exempt certain imports from

The U.S., for instance, memory chips that go to autos, which suggests that both really do realize that they need a deal, too. And then the lack of one and the high tariffs are hurting both of their economies. But I think that this one is going to be a lot harder to get. I think that China point is crucial, Kyle. Both countries are going to be damaged by these tariffs, are being damaged by these tariffs.

Alicia mentioned the exception for electronic goods that has helping Apple and the iPhone. Yes, but Apple said that the tariffs, nonetheless, even with the exceptions, are going to cost it $900 million in the current quarter alone, the second quarter of the year. This quarter alone, $900 million. Toyota said this week that the tariffs are going to cost it $1.2 billion.

This year, that's, of course, the Japanese automaker. But the shipping going into the port of Los Angeles has fallen off enormously, the shipments.

and big delivery disruptions. That flows through the economy for trucking, which has to carry the goods from the port to the rest of the country. It means looming shortages that have retailers have suggested are going to appear on American shelves on goods to Walmart and Target and other importers of retail goods.

I asked about that. The president has said, well, maybe the girls this Christmas will have to do with only two dolls instead of 30 dolls, or maybe they only need five pencils. But I think he's preparing people for the fact that there are going to be shortages.

Yeah, and I don't think that necessarily has gotten through to the broader public and to voters, maybe because some of the market turmoil has now calmed. But it takes some weeks for a shipping container in China to get to the United States. The figure I saw recently from NBC for the ports of Los Angeles and Long Beach is that docked vessels are down by 44%.

Port Commissioner for Seattle was on CNN on Wednesday night, and he was looking over his shoulder and saying, I can see it. We have no container ships that are at birth right now, which is an unusual situation. Also, I would point to the stockpiling that it seems if you can

look at the data that happened before Liberation Day and before these tariffs took effect, I think it may take some time for all of this to filter down to store shelves and to prices and to places where everyday ordinary Americans are going to see the damage from the tariffs. And I think that's

probably part of what the White House is reacting to now looking for a way to ratchet down this trade war, even with China, which by the way, I think is a bad actor on the world stage. And so you can have a conversation about America's trading relationship with China and how you should approach that, which can be a different one than what we do with respect to the UK and Japan and American allies. And that's a very different conversation though, when you're talking about

this mutual tariffs of 145%, 125%, which for all practical purposes, except for the exceptions, shuts down trade between the two countries and does some real economic damage. But Alicia, I mean, I guess it's a measure of good news overall that the president's walking back

On this, he's, of course, never going to acknowledge that. He's going to claim this was the plan all along, and this is now the result of his tariffs. But it is good news that some of the worst of this has been avoided. I think one of the lessons here, and this is the point that I think those of us who believe in free markets have to make, is that what do you know? When you remove trade barriers, people like it and markets like it because there's going to be more commerce, trading relations between consenting adults.

It's not burdened by higher taxes. And when you remove tariffs, you're not taxing commerce. And that's a good thing. I think that's right. Trade becomes much more and supply chains become much more efficient. And you saw that that's what essentially happened after NAFTA. And by the way, one of these misconceptions is that NAFTA resulted in an incline in manufacturing jobs and hurt American workers, which is just the opposite. You actually saw an increase in manufacturing jobs.

and boost in output because there was much more efficiency in terms of companies being able to manage their workforces, supply chains, and trade goods going back and forth across the borders. I think you would expect that across the world. If Trump were really interested in negotiating broader trade deals, some of these appear to maybe be one-offs.

And they're not going to follow the traditional path of union congressional approval, which does create the risk that Trump may decide to pull back in any day and slap another tariff on UK because he's angry about this or that. So I think that the uncertainty remains because of that.

Then the uncertainty is compounded by the fact that there's a real challenge to his reciprocal tariffs in court. And, you know, you could have that suit go ahead and judges put an injunction on that. Right. And I think that that will happen. I'm a little surprised that hasn't already. You've had California and some Democratic led states finally sign.

over that. You've also had some small businesses represented by nonprofit outbids sue. But the concern is, at least from what I hear, is that even if a judge enjoined these tariffs, that Trump will try to look to some other authority like Section 301A from literally the Smoot-Hawley Act to impose them again and find other ways to raise trade barriers. All right. We will leave this spirited discussion at that for today.

But the trade story is the biggest economic story in the world. And it will keep coming back and we'll talk about it. So thanks, Alicia. Thanks, Kyle. Thanks, you all, for listening. We're here every day on Potomac Watch. ADP imagines a world of work where smart machines become too smart. Copier, I need 15 copies of this. Printing. By the way, irregardless, not a word, Janet. Yeah, I know.

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