Has the US won the trade war?

Source: Trustnet

Markets were rocked this morning as US president Donald Trump ditched the TACO name (Trump always chickens out) and followed through with planned tariffs on countries around the world. 

Having set a deadline of 1 August, the president has stood firm and enforced price hikes on goods coming into America from overseas, although some were lower than previously threatened. These new tariffs will come into effect from 7 August.

It follows a trade deal between the US and the European Union, which could be the first sign of major players blinking in the wake of tariffs imposed by Trump in his tirade to generate more money for the country.

The EU deal follows an agreement between the US and Japan (as well as previous deals with the UK and China).

The most recent agreements have seemingly favoured the US, or at least that appears to be the consensus, with the EU deal in particular seen as a definitive win for the president.

It imposes a 15% tariff on most EU exports, including cars, pharmaceuticals and semiconductors, with Europe pledging hundreds of billions in purchases of American energy and military equipment.

The EU agreement has since been scalded, particularly by France. Prime minister Francois Bayrou took to social-media platform X to state: “It is a dark day when an alliance of free peoples, brought together to affirm their common values and to defend their common interests, resigns itself to submission.”

Meanwhile, French president Emmanuel Macron said the deal does not represent the end of negotiations and that Europe needs to be feared more to get a better outcome, according to reports.

Trump may view this as a win and, in the short term, it appears to be paying off. The US registered its first budget surplus in June since 2015, as the country raked in extra money from the president’s imposed 10%.

The amount brought in may rise significantly following these deals (the EU and Japan have agreed to 15% in some areas, higher than the current level), while the latest spate of tariffs on those that have yet to reach an agreement with the US will also bring in vital receipts for the government.

But is this short-term gain worth it? While it brings in a lot of money for the US government, it risks upsetting the global apple cart and forcing formerly strong trading partners to look elsewhere.

Companies on the continent may have to look elsewhere for places to sell their goods if sales drop in the US with higher tariffs now imposed. Notably, talks between the EU and China are ongoing and are unlikely to stop despite the US deal.

So, for now, things look okay. Everyone got what they wanted – for the most part. European companies can continue to deal in the US with higher (but lower than feared) penalties, while the US government gets to swell its coffers.

But fast forward 10 years or so and we may be looking back at this deal with a hindsight that reveals just how damaging for international trade this tirade has been.