Trade agreements: victories for Donald Trump, uncertainty for the US economy

The trade agreements are finally coming to fruition. After weeks of negotiations and delays, the tariff saga may be coming to an end, or at least in part. In political terms, there is only one conclusion: Donald Trump has won and forced other countries to give in. But beyond the diplomatic power play, the real question remains: what impact will tariffs have on the US economy?

Are we finally seeing the end of the tariff saga? After months of blowing hot and cold and delaying deadlines, Donald Trump is finally striking deals.

Introduced on April 2, the tariffs were suspended a week later for 90 days, and then the July deadline was pushed back again. This time, the August 1 deadline could bring some clarity.

Diplomatic victories

This month agreements have been signed with Vietnam, Indonesia, and the Philippines. Most importantly, a compromise has been reached with two major partners: Japan and the European Union.

Each time, the outcome is more or less the same. The United States gets much more than it gives up. It increases tariffs while lowering (or even eliminating) those on American products. And as a bonus, the countries concerned commit to investing in the US and/or purchasing American products.

The conclusion is that the US market is vital and no country can afford to lose access to it. That was Donald Trump's gamble. That's why he played the power game and, from his point of view, that approach has paid off.

If so many concessions are being made to the Americans, it is also because there is more to these agreements than just trade. For the Japanese and the Europeans, the US is also an ally that is indispensable for their defense. With everything linked to Donald Trump, everyone is also mindful of the need to secure US military support.

What are the consequences for the US economy?

The conclusion drawn from this sequence of events (at least as reported by the media) is that the US got what it wanted. It is a diplomatic victory for Donald Trump, who forced his counterparts to back down. All the commentary in recent days has focused solely on this aspect.

This is certainly a fairly objective observation, but it is not the only issue, and perhaps not even the heart of the problem. The real question is not so much who extorted what from whom, but what the economic impact of this new tariff environment will be, primarily on the US economy.

Taking into account the tariffs imposed on each country, plus the sectoral component (automotive, steel, aluminum), the average tariff level is expected to be between 15% and 20%. According to the latest estimate from Yale University, we are currently at 17.3%, a level not seen since the 1930s.

We will therefore need to monitor the impact on the US economy, in terms of both growth and inflation. Customs barriers generally cause stagflation (lower growth and higher inflation).

These impacts will themselves depend on how the burden of tariffs is distributed between consumers, US importers, and exporters. Not to mention exchange rates, as currency appreciation can help absorb some of the additional costs of tariffs (or accentuate them if the currency depreciates).

This week, a whole series of data will be published (employment, inflation, and growth) and could provide some initial answers. But it is likely that the full impact will only be felt in the coming months, as stocks need to be replenished and companies pass on price increases.