Trump’s threat of more tariffs makes US trade partners wary of signing deals

SYDNEY – Tariff negotiations with the Trump administration are running into roadblocks as partners, including Japan, India and the European Union, baulk at signing deals without knowing how badly they will be hit by separate industry-specific duties on exports such as chips, drugs and steel.

The US Commerce Department is set within weeks to announce the outcomes of its investigations into sectors deemed vital to national security, including semiconductors, pharmaceuticals and critical minerals. The probes are widely expected to result in levies applied under Section 232 of the Trade Expansion Act on a range of foreign-made products in those industries.

The problem is, governments seeking agreements to whittle down

country-by-country tariffs US President Donald Trump announced

on April 2, and then suspended till July 9, have no idea where those sectoral levies will land. For many, industry-specific tariffs may be more damaging than the broader levies.

“Imagine you’re a Vietnam or Japan or Korea, and you’ve just agreed to some potentially painful compromises on reciprocal tariffs, and the very next day after this is announced, they turn around and levy new 232s against you,” said Dr Deborah Elms, head of trade policy at the Hinrich Foundation. “The last thing you want is to agree to a deal only to be hammered the next day.” 

A cautionary tale for many countries is the partial deal Britain accepted. That pact left key details about bilateral steel trade subject to further negotiation on a quota system and stronger origin requirements. In the meantime, the Trump tariffs of UK steel remain at 25 per cent – failing to meet the British government’s goal of lowering them to zero. 

“There is no clarity in how all of these tariffs would interplay, which is also causing major concerns among our partners,” said Ms Wendy Cutler, a former senior US trade negotiator who is now vice-president of the Asia Society Policy Institute.

The UK framework showed that there is some wiggle room with the US on sectoral tariffs, but other nations should not view it as a template for their own negotiations, according to a White House official. The 232 tariffs are meant to reshore manufacturing of goods viewed as critical to national security, which is separate from the aims of the April 2 tariffs, the official said. 

Among the difficulties for many countries is understanding how the Trump administration can at times view the tariffs – and the threat of them – in a transactional way.

US Commerce Secretary Howard Lutnick, testifying before the Senate earlier in June, gave an example of how 232 tariffs could be used in negotiations to induce commercial deals. Part of the UK’s deal was no American tariffs on aerospace products – which are subject to a pending 232 investigation.

“In exchange for us doing a zero tariff – I mean, think of Donald Trump – he then gets an agreement by British Airways to buy US$10 billion (S$12.7 billion),” Mr Lutnick said. “They were competing with Airbus, and as part of that agreement, they committed to buying Boeing aircraft of US$10 billion.”

Mr Lutnick added that “if other countries play ball with us, I would expect that’s an offer we make provided they’re buying our aircraft”.

For the EU, which is already getting hit hard by 25 per cent auto tariffs and 50 per cent on steel, talks around the sectoral levies have made less progress and are unlikely to be solved before July 9, according to people familiar with the process. 

Officials in Brussels see an agreement on broad principles to allow negotiations to continue as the best-case scenario at this stage in the EU-US talks, the people said.

Japan is keen on settling all potential US tariffs – from duties on cars, auto parts and metals to Mr Trump’s country-specific levies – in one go. But a sticking point in negotiations has been the 25 per cent tariffs on cars and car parts imposed by the Trump administration.

Washington is focused on autos because it is the sector that is responsible for most of its trade deficit with Japan. But Tokyo sees that industry as a key economic pillar, since it employs about 8.3 per cent of Japan’s workforce and generates around 10 per cent of gross domestic product.

“For Japan, automobiles are truly a matter of national interest. We will do whatever it takes to protect that,” Japanese Prime Minister Shigeru Ishiba told reporters in Canada earlier in June, shortly after he failed to reach a deal with Mr Trump in their in-person meeting on the sidelines of the Group of Seven summit.

His hand-picked trade negotiator, Mr Ryosei Akazawa, has said Japan will not fixate on the July 9 tariff deadline as he continues talks with his US counterparts. Mr Akazawa has said he expects that a deal with the US will spare Japan from higher auto tariffs, even if Mr Trump increases them against other nations.

India has dug in its heels on the issue and is unwilling to sign a trade deal with Washington that does not address both sectoral and reciprocal tariffs for its exports, people familiar with the matter said.

When it comes to potential sectoral tariffs, Indian officials are pushing for a commitment from Washington that any deal matches the best agreement offered to any other nation it is in talks with, they said.

Any deal with the US has to be defensible in the eyes of domestic stakeholders and the US insistence on retaining these additional levies will render Indian producers uncompetitive, the people said, requesting anonymity to disclose private discussions. 

Indian officials are also reluctant to sign a tariff deal amid uncertainty over legality after a US federal court deemed the tariffs illegal in May, the people said. A higher court later gave Mr Trump a temporary reprieve of that order.

Amid the legal uncertainty, some Trump administration officials believe the 232 levies could effectively supplant the country-by-country duties, Bloomberg News has reported.

Mr Trump’s tariffs on steel, aluminium and automobiles, and the expected levies on pharmaceuticals, have raised concerns among Indian exporters that have been urging the government to not ink a deal that will adversely impact their shipments. Exporters say the US move to raise levies on metals and autos are a huge setback for them. 

“These duties impact India’s engineering exports to the US, which are valued at over US $20 billion annually,” said Mr Pankaj Chadha, chairman of the Engineering Exports Promotion Council. “We hope that these sectoral tariffs will be suitably addressed in the bilateral trade agreement.” BLOOMBERG