What’s Next in President Trump’s Tariff Showdown

As the July 9 tariff deadline approaches, expect more deals in coming days, but the drama is far from over. Who is in and who is out—for now.

Trade week is almost here.

Ahead of a looming July 9 deadline for higher tariffs on more than 100 countries, the Trump administration is likely to unveil a handful of preliminary deals even as it ramps up pressure on other countries and confirms investors’ hunch that tariffs are here to stay.

Trade negotiations have been chaotic since the administration hit pause on the tariffs it unveiled on April 2 in its bid to rapidly reorder the global trading system. The goal is to reduce the country’s $1.2 trillion trade deficit along with many non-tariff barriers.

Having trouble keeping track? You’re not alone. Recent weeks have been marked with bouts of escalation followed by de-escalation—most famously with China, and more recently with the European Union, Canada, and Japan.

The administration’s vow to strike 90 deals in 90 days is out the window. Only a preliminary agreement with the United Kingdom that left 10% tariffs in place had been struck before Wednesday’s announcement that Vietnam had agreed to 20% tariffs. That’s twice what the export-dependent nation started with but half the level threatened on April 2. The Trump administration also said it would levy a 40% duty on “transshipped” goods—targeting concerns that China was using Vietnam to circumvent trade restrictions.

Negotiations have been complicated by various factors, including domestic politics such as elections this month in Japan, pushback from countries against U.S. demands that they take a harder stance on China, and uncertainty over the fate of industry-oriented tariffs. Some of those are already in place, others are pending.

President Donald Trump this week reiterated the July 9 deadline, adding that he would send letters to countries informing them of their tariff rates. But analysts caution against the notion that the coming days will abate tariff uncertainty: Deals are likely to be preliminary, and those sector-oriented tariffs could jeopardize any fragile agreements.

Even amid the uncertainty, the S&P 500 index has managed to hit new highs. Investors are playing down trade risks after several instances in which the administration has pulled back on escalatory moves. But trade veterans and analysts note that the uncertainty, which has left many businesses hesitant to invest and spend, could continue.

ON-AGAIN, OFF AGAIN

“I look at the template as the U.K. deal: We will agree on what we can, agree that we are not done agreeing on things and keep working, even while we paper the phase one deal,” says Neil Bradley, chief policy officer at the U.S. Chamber of Commerce. “Largely, 10% tariffs stay in place, and they kick the can down the road [on other issues].”

Among the larger trading partners that are contenders to get a framework agreement are India, Canada, South Korea, and possibly the European Union, though each has had rough patches in the back and forth. Deals could include agreements to buy U.S. goods—natural gas, agriculture, weapons—and open up certain markets for U.S. companies.

India was early to the negotiating table and prioritized by the Trump administration, according to trade experts. The country has a hefty share of trade barriers and is a domestically oriented economy. However, Prime Minister Narendra Modi has tried to position India as an alternative for companies such as Apple seeking diversification from China.

India could emerge with an agreement that includes a reduction in some tariffs on both sides, with the objective of a larger bilateral deal to come, says Mark Linscott, a career trade negotiator who worked in the Obama and first Trump administration and is now a senior adviser at consultancy The Asia Group.

The administration will also look to make an example of some countries where talks have been more difficult, analysts say. One example could be Japan. Trump this week described Japan as “spoiled” and bristled at its unwillingness to accept U.S. rice exports. He threatened a tariff rate of as much as 35%— higher than the 24% it floated on April 2.

HERE TO STAY

Most analysts expect countries to end up with at least a 10% tariff, four times what many started with. With Vietnam out of the way, Malaysia, Thailand, and the Philippines could get hit with higher tariffs—15% to 20%—due to transshipment concerns, says Henrietta Treyz, director of economic policy research at consultancy Veda Partners.

The wild card that companies and investors are most worried about are related to sector-oriented tariffs, imposed under Section 232 of the Trade Expansion Act, for national security reasons. Aluminum, steel and autos are already subject to sectoral tariffs. Investors have been waiting for the Commerce Department to issue duties on pharmaceuticals, semiconductors, lumber, and timber, among other industries.

These sectoral tariffs have complicated negotiations as they target critical industries for America’s biggest trading partners—autos for Japan, aluminum for Canada, lumber and timber for South Korea, pharmaceuticals for the European Union and India, and semiconductors for Taiwan. “I would be very wary of giving up the store and not knowing what certainty you have in terms of what is coming on 232s,” Linscott says of negotiators.

THE CHINA HURDLE

China faces the highest batch of tariffs at 55% after the latest fragile truce was reinstated. But pitfalls abound, with few of the structural issues yet tackled and the administration still sitting on a list of companies for which it wants to restrict sales, along with plans to tighten export controls. China is also likely to get hit with industry tariffs.

“Any of these could push China to ramp up its own countermeasures,” says a person with knowledge of the administration’s thinking. “Both sides have to be very careful in weaponizing their supply chains because it could have a very big impact. But the U.S. risks underestimating the counterforce China has in reserve to retaliate.”

There is also the potential for further de-escalation, especially if Trump accepts China President Xi Jinping’s invitation to visit in September. China recently reclassified precursors to fentanyl as illegal, a move that could pave the way for the U.S. to ratchet back some of the 20% tariffs it imposed, citing China’s role in the fentanyl trade.

How long any of it lasts is anyone’s guess.

Write to Reshma Kapadia at reshma.kapadia@barrons.com