Trump’s tariff tension may be easing after deals with EU, Japan

With deals reached with Japan last week and the European Union this past Sunday and ongoing talks with China, President Donald Trump has now drawn three of the United States’ top five trading partners into agreements based on his alternative view of world trade.

Talks with No. 2 Canada have reached an “intense” phase, according to that nation’s prime minister, while few details have emerged about discussions with No. 1 Mexico ahead of Mr. Trump’s Friday deadline for final negotiations. On Tuesday, after two days in talks under the U.S.-China framework, U.S. representatives said the decision to continue negotiations beyond an Aug. 12 deadline would depend on the president.

Through one lens, the string of deals represents a big victory for Mr. Trump. He has single-handedly challenged the accepted wisdom that rules-based international trade is a win-win for nations that engage in it. The world’s largest economies are resetting policies based on his iconoclastic vision that powerful nations can make their own bilateral deals and come out ahead.

“When will even critics admit that President Trump’s trade strategy is working?” asked former Trump adviser and conservative commentator Larry Kudlow on Monday on FOX Business Network, in the wake of the EU deal. “And there’s no world trade war, no tariff retaliations. As usual, the so-called experts are wrong.”

Not surprisingly, many of those experts disagree.

“These are not wins,” says Mary Lovely , a senior fellow at the Peterson Institute for International Economics. “The fact that the U.S., the largest economy, the richest market in the world, is able to basically twist the arm of its trading partners – does that really surprise that many people?”

The economy still loses, most trade experts say, because tariffs reduce competition and raise prices. And if talks fail and a trade war breaks out, the risks of a severe slowdown rise considerably.

So far, the damage hasn’t been evident.

On Wednesday, the U.S. Commerce Department reported that the economy grew at an annual 3% rate in the second quarter, helped by a surge in consumer spending. A decline in the flow of imports may make the growth look a little stronger than it actually is, just as a surge of imports before tariffs made the economy look like it was weakening (-0.5%) in the first quarter. The Yale Budget Lab forecast on Monday that it expects tariffs, at highs not seen since 1934 , will cost the average household $2,400 this year.

Those figures do not include a new 25% tariff that Mr. Trump announced on Wednesday for India, along with an additional penalty for its purchases of Russian arms and energy.

In some ways, declaring either victory or defeat for Trump’s tariff policy is premature. The talks with China and deals with Japan and the EU represent only frameworks. They shape the deals, but it will still take months of negotiations to finalize all the nitty-gritty details. Until such details are set and a real trade deal is signed, it’s hard to know how well each side has fared.

A case in point: a $550 billion U.S.-bound investment fund that Japan agreed to last week. To hear President Trump tell it , the Japanese have given him that huge sum to invest in bolstering U.S. industries, such as computer chips and critical minerals. To hear Japan’s trade negotiator Ryosei Akazawa explain it , Japanese money could go toward a Taiwanese chip firm building a plant in the U.S. and using Japanese chip-making equipment. In Akazawa’s telling, only 1-2% of the sum would come as direct investment, with the rest as loans or investment guarantees.

Another mystery: Under Sunday’s trade framework, announced by President Trump and European Commission President Ursula von der Leyen, the EU has committed to buying $250 billion a year of U.S. energy. That goal is nearly impossible to meet, energy experts say, since the union would have to source almost all its oil from the U.S., and it doesn’t control where European companies buy their energy.

“As we’ve seen before, this symbolic announcement will be hailed as victory,” says Wendong Zhang , an economist at Cornell University’s business school. But its real long-term impact is questionable.

Such details matter. If Mr. Trump’s trade deals lead to an investment surge of several trillions of dollars into the U.S. and a rise in U.S. exports, then the president’s supporters may well be right to say his policy succeeded. The deals could overcome any drag from tariffs, which are paid by U.S. importers and serve as a tax on consumers. If, however, the actual benefits turn out to be much smaller, the tariffs could slow the U.S. economy.

Even if the details don’t get hammered out for months or years, the fact that negotiations are ongoing means that the president avoids a trade war, perhaps the biggest economic threat to his plans. China, the EU, and Japan have all decided to talk rather than impose tariffs of their own on U.S. goods. This greatly reduces the threat that Americans and U.S. businesses would face sudden shortages of goods or huge price spikes.

At the same time, the U.S. continues collecting tariffs from importers at record rates, reaching $27 billion in June alone, according to the Treasury Department. Treasury Secretary Scott Bessent has predicted the U.S. could collect more than $300 billion from tariffs by the end of the year.

Another emerging theme from the agreed frameworks: The minimum tariff on U.S. imports may be 15%. That’s the rate the EU and Japan were able to negotiate. And on Tuesday, Mr. Akazawa said Japan had won a U.S. guarantee that if another nation negotiated a lower rate for computer chips or pharmaceuticals, Japan would receive that same rate.

The 15% minimum rate, while not great in economists’ view, represents a much smaller tariff hit than the president has threatened. In that sense, it is allowing governments, companies, and markets alike to breathe a sigh of relief, says Dr. Zhang of Cornell.

That relief could also bring a temporary boost to the economy as companies begin to plan investments again now that the policy horizon is clearing a little.

“President Trump created a lot of uncertainty, and he is starting to unwind it a little bit,” says Dr. Lovely of Peterson.

America’s biggest trading partners, Mexico and Canada, have yet to reach a framework deal. That may be in part because their economies are the most dependent on exports to the U.S., so the stakes are dramatically higher than for China or Japan. And their companies are the most intertwined with American supply chains, which makes negotiations more complicated.

Both also have an escape hatch: the United States-Mexico-Canada Agreement, which Mr. Trump negotiated in his first term. So far, the administration has exempted from tariffs any Mexican and Canadian goods that meet the rules of the free trade deal. Canadian firms, in particular, are rushing to obtain USMCA certification. So even if neither nation reaches a tariff deal by this Friday’s deadline, both might endure the increases the president has threatened to impose, Dr. Zhang says, since the reality on the ground might not change much.

Editor's note: This article was updated July 30, the day of initial publication, with the latest U.S. economic output news.