(Grant Thornton)—In a pair of announcements within a week of each other, the Trump administration attempted to de-escalate parts of the trade wars it launched over the last few months.
Most notably, the Trump administration and Chinese government agreed to a 90-day pause on the embargo-level tariffs each imposed on the other in early April. The U.S. dropped its baseline tariff rate to 30% (from 145%) on Chinese goods, while China will drop their tariff rate on U.S. products to 10% (from 125%) until Aug. 10. This is meant to allow time for further negotiations, and according to Treasury Secretary Scott Bessent, both sides are working on what next steps could look like. The pause became effective on May 14.
“We do not want a generalized decoupling from China,” Bessent said in a May 12 televised interview. “But what we do want is a decoupling for strategic necessities, which we were unable to obtain during COVID and we realized that efficient supply chains were not resilient supply chains.”
Bessent elaborated on what the administration’s view of their desired outcome means in the same interview.
“Dual circulation cannot mean that China over-produces and that only Chinese goods are consumed in China, and they export the excess to the rest of the world,” Bessent added. “This is just a pause.”
Though welcome news for many U.S. businesses and consumers, significant caveats about tariffs fully going away abound. The first Trump administration and the Chinese government reached a similar-type deal that was not legally binding, and China did not come close to adhering to the purchasing agreements it made with the administration (though the deal being announced shortly before the global COVID pandemic may have been a factor).
The administration’s baseline tariff rates remain at high levels for the U.S., historically, and based on statements by Trump and others, the White House seems to want to continue a 10% universal tariff on nearly all imports, regardless of country-by-country negotiations. Secretary Bessent also signaled that heightened tariffs focused on product-types more than countries of origin, generally set at 25% so far by the Trump administration, will continue, with more on the way.
“We are going to protect our own steel industry, the work on critical medicines, on semiconductors, and the reciprocal tariffs have nothing to do with the specific industry tariffs,” said Bessent.
That’s a nod to additional Section 232 tariffs expected to be imposed later this year on pharmaceuticals and components, semiconductors, critical minerals, and their derivative products, copper and copper derivatives, jet engines, and timber and lumber (as well as their derivatives).
Overtaken by the China news, the Trump administration also reached an initial de-escalatory agreement with the United Kingdom. The agreement does not dramatically change the current status quo between countries: 10% tariffs will still apply to most UK imports into the U.S., though 100,000 automobiles can be imported without triggering 25% auto tariffs also imposed by the administration (though they will be dutied at 10%). The auto industry, which the White House has granted some exemptions from tariffs, publicly criticized that agreement.
The UK has also agreed to waive a 20% tariff rate quota currently on 1,000 metric tons of American beef, and give preferential duty-free treatment for up to 13,000 metric tons of American beef and 1.4 billion of ethanol.
Most of the rest of the agreement contains language suggesting the U.S. and UK will continue dialogue around issues the two countries have negotiated for years, with a few highlights:
– Contingent on the Sec. 232 investigation into foreign pharmaceuticals that is expected to result in 25% tariffs on imported prescription drugs and components for those medicines, the U.S. and the UK “intend to promptly negotiate significantly preferential treatment outcomes on pharmaceuticals and pharmaceutical ingredients,” and, “The [UK] confirms that it will endeavor to improve the overall environment for pharmaceutical companies operating in the [UK].”
– In addition to products already addressed in this document, the United States and the United Kingdom intend to adopt a structured, negotiated approach to other sectors that may be subject to Section 232 investigations or other tariff measures with a view to a significantly preferential outcome.
– The , “disappointed that the UK was unwilling to agree to fully address its discriminatory Digital Services Tax. It is discriminatory, unjustified, and should be removed promptly,” in a fact sheet on the non-binding agreement released by the agency.
First hearing in legal challenges against tariffs
The U.S. Court of International Trade heard arguments on May 13 in the first legal challenge to President Donald Trump’s use of the International Emergency Economic Powers Act for many of the tariffs put in place this year, including levies on Canadian, Chinese, and Mexican imports, as well as the administration’s 10% universal tariff.
The case, brought by a small New York-based wine importer V.O.S. Selections, and joined by four other small businesses, could throw a wrench in the tariff regime crafted by the administration over the last few months. Legal experts are uncertain whether this challenge, among others, will succeed, though Trump’s use of the IEEPA to implement tariffs is the first time the law has been used in this generalized way; typically it has been used for more targeted sanctions on terrorist organizations and hostile foreign governments. However, courts have sided with the executive branch in previous legal challenges to the IEEPA, due in large part to the president’s constitutional role as commander-in-chief.
The suit centers around whether Trump exceed his authority under the IEEPA to unilaterally institute tariffs. A predecessor law was used by former President Richard Nixon to institute a temporary 10% universal tariff in the early 1970s, as a way to address a balance of payments crisis, but opponents of the tariffs may argue that the declared emergencies used to impose them combatting fentanyl smuggling and trade deficits do not necessitate such tariffs.
The constitutional nature of the case requires a three-judge panel from the court and could drag out the case. The Liberty Justice Center, a libertarian litigation nonprofit, is representing the plaintiffs, making a sustained challenge more likely.
The case is far from the only one filed against Trump’s IEEPA tariffs. Twelve attorneys general, all Democrats, filed to enjoin and overturn the tariffs, arguing that the duties are causing economic harm to state governments. That case is also within the jurisdiction of the U.S. Court on International Trade.