1 Likely, 1 Unlikely, and 1 Iffy Trade Deal Before August 1st Tariff Deadline

August 1st is the new deadline for countries to make trade deals with the U.S. or face reciprocal tariff hikes from President Trump.

The president sent out letters to over 20 trade partners, informing them of the new tariff rates that will go into effect on goods the U.S. imports from them. Should countries choose to increase their tariffs on U.S. goods in response, those percentage increases will be added to the new U.S. tariff percentages, respectively, the letters inform the countries’ leaders. But the letters also provide room for Trump’s tariffs to be lowered should other countries lower their tariffs and trade barriers on U.S. goods.

Ultimately, President Trump created inducement for countries to quickly get trade deals done. The tariffs are not an idle threat. President Trump has shown a willingness to put tariffs in place, and they’ve proven to be incredible revenue sources for the U.S. government. However, there are only a couple weeks left before the August 1st deadline. How likely are deals to get done in that little window?

Today, we give three trade deals spanning the spectrum of likeliness before August 1st hits: one that seems likely, one that seems unlikely, and one that sits in the middle with a very iffy status.

Likely – India

Of all the potential trade deals the U.S. could make right now, I’ve probably heard one is likely coming soon with India the most and for the longest. That could easily create a boy who called wolf skepticism. However, the U.S. and India are actively negotiating, with a team from India’s commerce ministry in Washington right now.

Answering questions on the White House lawn yesterday, President Trump brought up the trade deal his administration is working on with India when speaking about the trade deal just announced with Indonesia. It certainly made it sound like the India trade deal is close:

… we will have full access into Indonesia. And we have a couple of those deals that are going to be announced. Uh, India basically is working along that same line. We’re going to have access into India.

When the president says there are a couple of deals like the Indonesia one that are going to be announced and that causes him to immediately jump to India, comparing the deal being made with it to the one with Indonesia, it makes me think the India trade deal is the most likely one to be announced next. That moment happens at the 2:43 mark in the video below:

Of course, there is no guarantee this trade deal will come before the August 1st deadline. While there have been many reports New Delhi wants a deal to avoid President Trump’s reciprocal tariffs, India has shown resilience to rushing into a trade deal it doesn’t think is good to beat tariff deadlines.

Before the previous, July 9th reciprocal deadline was reached, Commerce Minister Piyush Goyal said, “India never does any trade deal based on deadline or time frame. When the deal is done properly, and is completely finalized and is in the country’s interest, then we will accept it.”

Many outlets have pointed to duty concessions the U.S. wants from India on U.S. dairy and agricultural products as a big issue in the negotiations between the countries. That could be the biggest hurdle to clear for an India trade deal to be announced by August.

Still, President Trump said yesterday, “We’re very close to a deal with India…” This deal lands in the “likely” column.

Unlikely – Japan

After what President Trump said yesterday regarding a trade deal with Japan, “unlikely” probably isn’t a strong enough word for describing the odds of it happening by August 1st. Nothing is impossible, but if I were giving an odds percentage on the likelihood of a U.S.-Japan trade deal in the next two weeks, it would be between zero and one. And closer to zero.

While President Trump talked about a deal with India being very close, he also said yesterday, as reported by Sourasis Bose in a Stockwits article, “that he does not expect to reach a broader agreement with Japan anytime soon.”

I bring up the Stockwits article because it’s an excellent one on the topic, gets into the impact President Trump’s tariffs are having on Japan’s economy, the likeliness (or lack thereof) of a trade deal happening soon, and correctly points out one of the most contentious points of negotiation for a trade deal there. First, the impact:

Exports from Japan declined again in June, following a 1.7% drop in May, as U.S. tariffs continue to heighten the risk of a recession.

According to a CNBC report, exports from the Asian powerhouse declined 0.5% last month, while economists polled by Reuters had expected a 0.5% rise. The June drop was led by an 11.4% plunge in exports to the U.S., while deliveries to China declined by 4.7%.

The Ministry of Finance Data gave a fresh look at how the Trump administration’s tariffs are impacting trade. Last month, Japan’s exports to the U.S. had fallen 11%. Washington, D.C., intends to impose additional 25% reciprocal tariffs on Japanese exports from Aug. 1 unless the two sides reach a trade agreement.

As stated, that trade deal isn’t likely to come before August despite the very negative impact these tariffs are having and their impending increase will exacerbate for Japan.

The auto industry is very big in Japan, and has been for decades. You’d know that at the very least from Mr. Mom if you grew up in the 80’s. Thanks, Michael Keaton. It’s no surprise President Trump’s tariff on automobiles is a big sticking point in making a deal with Japan, as Bose points out:

One of the primary contentious issues regarding a trade deal remains tariffs on Japanese car exports. Since April 3, the U.S. has already imposed 25% tariffs on Japanese automobiles, which make up nearly 30% of all exports to the U.S.

Another widely reported issue is President Trump wanting Japan to open up for U.S. agricultural exports, which Bose mentions at the end of his article and is a common theme in Trump Administration trade negotiations with other countries. That’s a sticking point that Japan does not want to bend on.

Ultimately, a deal with Japan before August 1st doesn’t merely go in the unlikely column; it’s very unlikely.

Iffy – EU

A trade deal with the EU is inherently more complicated than most because it’s a block of countries rather than just one for the Trump Administration to come to terms with.

In late June, we blogged about a new trade proposal the U.S. gave to the EU and the EU leaders meeting to debate a quick trade deal to avoid tariffs, which many were in favor of. Doing something along the lines of the Trump Administration’s UK trade deal seemed decently likely.

Simultaneously, the EU has also been planning countermeasures, including retaliatory tariffs, for Trump’s reciprocal tariffs. But a number of EU leaders have voiced not wanting to get into an escalating tariff trade war with the U.S. Needless to say, there have been mixed messages on whether the EU will make a deal or escalate the situation.

There have been more leaders voicing a desire for a deal over retaliation and trade war. That gives some optimism, but a deal getting done in the next two weeks looks shakier and shakier to me. While President Trump did say yesterday a deal with the EU is possible, in the same interview I shared the video of above, he sounded content to hit the EU with the 30% tariff his letter informed them would be implemented on August 1st:

No. Uh we are talking to the EU and we’re making progress. But look, you know, we already have a deal with the EU. It’s called the letter that was sent out. I think it was 30%. That’s the EU. But we, uh, at the same time we are talking.

Here’s that video again. President Trump talks about the EU at 8:31:

The U.S. and the EU are negotiating. For what it’s worth, according to the New York Times, the EU has urgency to get a deal done. It uses words like “rushes to negotiate” and “is racing to clinch an agreement.”

Again, the issues of President Trump’s 25% tariff on automobiles and his desire for increased U.S. agricultural exports to other countries loom in negotiations. The UK got a special deal when it came to auto tariffs, but that kind of deal is probably less likely for all the countries of the EU. The Trump Administration is likely looking for not only removal or reduction of duties and trade barriers on U.S. agricultural goods but also a commitment from the EU to import a significant amount of U.S. agricultural goods. The Trump Administration likely wants a similar commitment on U.S. oil and related products. Tech regulation has widely been reported as a sticking point too.

That there is some reported urgency to get a deal done from the EU and that serious negotiations have been happening for a while make it possible a deal could happen before August 1st. However, there are plenty of complications making it iffy that it will happen. And President Trump doesn’t appear to be bothered by the idea of imposing the 30% tariff on the EU come next month if there’s no deal he’s satisfied with yet.

Negotiations Don’t End August 1st

If no deal is reached by August 1st, and the new tariff is implemented, that is not the end of things.

Negotiations will continue, and if a new deal is reached with a country, the tariffs on that country will be changed accordingly. I expect negotiations to really ramp up after August 1st with countries that don’t have a new deal.

I think we’ll see a lot of news regarding trade negotiations, trade deals, and tariff changes in the weeks following August 1st. And there’s a good chance retaliatory tariffs are part of all that too.