Two Things Trump’s UK Deal May Tell Us About Ongoing Trade Negotiations

President Donald Trump announced his first trade this week. With more than 50 others remaining, the biggest question remains what’s next.

The U.S. and the U.K. on Thursday agreed to lower trade barriers on cars and agricultural products, respectively. But the agreement did little to reduce the economic impact of Trump’s 10% “reciprocal tariffs” on the country’s 11th-largest trading partner.

Trump has set a July deadline for countries subject to higher “reciprocal” tariffs to negotiate, leaving little time for the White House to reach agreements with dozens of countries. U.S. and Chinese officials are meeting this weekend, a start to negotiations with one of the U.S.’s largest trading partners—which faces the highest tariffs.

Economists evaluating today’s news in search of clues as to future U.S. trade agreements focused on two ideas: first, that some degree of baseline tariffs could remain in place with all countries, and that the next round of announcements may not read like traditional trade agreements.

“It is an important test case and a model for what could be accomplished,” said Chris Zaccarelli, Chief Investment Officer for Northlight Asset Management.

The Average Tariff May Not Go Down Much

Trump said the 10% baseline tariff for the U.K. was the lowest possible, suggesting this level of tariff would remain in place for other countries regardless of the outcome of future negotiations.

“While exemptions will nibble away at the effective tariff rate, with the baseline 10% not going anywhere, the average U.S. tariff is still set to remain in double digits,” wrote Michael Pearce, deputy chief economist at Oxford Economics.

That, Pearce said, “will deliver a big hit to real incomes in the U.S. which will cause growth to slow sharply in the second half of the year.”

Trade experts have warned that 10% tariffs on most trading partners would likely push up inflation and hurt the job market—and do more damage the longer they stay in place. Federal Reserve Chair Jerome Powell on Wednesday said the import taxes were making it harder for the Fed to do its job of keeping inflation down and employment up.

The Next Agreements May Be More Like Frameworks

During Thursday’s post-agreement press conference, British Prime Minister Keir Starmer said this wasn’t the end of trade talks between the two countries.

“We can finish hammering out some of the details, but there’s a fantastic platform here,” Starmer said.

That could indicate that many of the upcoming agreements will not be traditional deals, but rather guidelines for advancing trade relationships.

“Given that full trade deals take years to negotiate, this will likely be a framework,” Deutsche Bank analysts wrote Thursday before the U.K. agreement’s details were revealed. “…That will provide an important template for negotiations with other countries and a good guide to the long-term tariff strategy of the U.S.”