Threat of more tariffs hangs over countries negotiating trade deals with the US

WASHINGTON – Governments around the world are racing to negotiate trade deals with the US to forestall President Donald Trump’s punishing tariffs, which could kick in on July 9. But the discussions have been slowed because Mr Trump has threatened to impose more tariffs even if those deals are in place.

Mr Trump announced what he refers to as “reciprocal tariffs” on April 8, which he said were in response to other countries’ unfair trading practices. But he agreed to pause those levies for 90 days to give countries time to reach trade deals with the US.

Some administration officials recently suggested that the deadline could be extended, but Mr Trump has signalled that he is ready to slap tariffs on countries he views as uncooperative.

“We have countries that are negotiating in good faith, but they should be aware that if we can’t get across the line because they are being recalcitrant, then we could spring back to the April 2 levels,” US Treasury Secretary Scott Bessent said in an interview with Bloomberg Television on June 30.

India, Vietnam, Japan, the European Union, Malaysia and other governments

have been working towards deals

that could smooth relations with the US and avoid double-digit tariffs.

But the Trump administration has been moving forward with plans to impose another set of tariffs on certain industries that it views as essential to national security, a threat that has foreign leaders worried there could be more pain ahead.

These tariffs are dependent on the outcomes of trade investigations into lumber and timber, copper and critical minerals by the Commerce Department, which are expected to be finalised soon and submitted to the White House, according to people familiar with the matter.

A determination that imports pose a national security threat would allow the President to issue tariffs on those products in the coming weeks. Investigations on pharmaceuticals, semiconductors and electronic devices are also proceeding and could be finalised in time for tariffs as early as July, the sources said.

Mr Bessent added that tariffs on imports of items such as lumber were being implemented on a different track than the reciprocal tariffs that were announced in April and are not part of the current round of trade negotiations.

Those tariffs on certain critical sectors, which would be issued under Section 232 of the Trade Expansion Act of 1962, aim to build up domestic capacity for important products and ensure that the country is not reliant on foreign factories in times of war or shortages.

But these sectors – along with automobiles and steel, on which the Trump administration has already applied national security tariffs – are also vital industries for America’s largest trading partners, like Japan, the EU and India.

These governments have been hesitant to strike a deal with the Trump administration, worried that they will be hit by more levies down the road. For some foreign governments, these national security tariffs are potentially more concerning than the reciprocal tariffs Mr Trump is threatening to apply to all their US exports.

For the EU, tariffs on medicines, the bloc’s top export to America, could be enormously painful. It is unclear whether a trade deal that the US and the EU have been drafting will address that issue. Mr Friedrich Merz, the German chancellor, has suggested that negotiations should focus on a few key sectors, including medical drugs.

“We now need rapid joint decisions for four of the five major industries: automotive, chemicals, pharmaceuticals and mechanical engineering,” Mr Merz said last week, adding that “we don’t want the best of the best; we want the most important of the necessary.”

Pharmaceutical tariffs are also a major threat to India, which the Trump team has consistently been optimistic about striking a deal with. In 2024, India exported almost US$13 billion (S$16.5 billion) worth of drugs, and the US is its biggest market.

For Japan and South Korea, as well as Europe, exports of cars and steel to the US have been a particular concern. Along with disputes over opening Japan’s market to US agriculture, US tariffs on Japanese cars appear to be a thorny obstacle in what US officials presumed would be a relatively smooth negotiation.

Vietnam, Japan, Malaysia, South Korea and Indonesia could be hit by tariffs on semiconductors and other electronics, including phones and computers. Vietnam and Malaysia could also be hurt by tariffs on lumber and timber, which could cover products like kitchen cabinets.

Several foreign governments have tried to negotiate provisions exempting them from other future tariff increases, but it is not clear how lenient the Trump administration will be on national security tariffs.

The administration has sent some mixed messages about how much it might be willing to lower them; some officials insist they are not up for negotiation.

Trump officials have criticised exemptions from global steel tariffs granted to various countries by the Biden administration, saying that they undermined their effectiveness.

Trade experts said that giving tariff exemptions would also risk angering labour unions that support them, and undercut the Trump administration’s argument that the tariffs must be in place to protect national security.

Mr Nick Iacovella, the executive vice-president of the Coalition for a Prosperous America, a trade group that supports tariffs, said that if the administration was “giving away” exemptions on tariffs on critical industries, it was “signalling to everyone that these really aren’t national security issues”.

Privately, Trump officials have said there may be some wiggle room. Notably, the framework agreement that the US announced with Britain in May included some concessions on national security tariffs on cars and steel.

Britain secured an exemption from car tariffs for a volume of exports set at historical levels. That deal, as well as lower levies on aerospace exports such as Rolls-Royce jet engines, came into effect on June 30, more than seven weeks after the framework agreement was announced. For most of that time, companies were unsure when lower tariffs would be implemented. However, the agreement to eliminate steel tariffs has not been implemented as the two sides negotiate requirements for British steel companies.

This arrangement has encouraged Japan, the EU and others to seek a “UK-style deal” to also exempt them from national security tariffs. But some Trump officials say that because the volume of their exports is so large, exemptions would be a major threat to US industry.

British exports of cars and steel to the US were viewed as too limited to be much of a threat. But such exports from Japan, South Korea and Europe are substantial.

Mr Jamieson Greer, the US Trade Representative, has said privately that the British provisions were not a precedent or framework for other countries, according to a person familiar with the remarks.

Mr Peter Harrell, a former Biden administration official who is a non-resident fellow at the Carnegie Endowment for International Peace, said Britain exports about 100,000 cars to the US each year. But Japan, the EU and South Korea together exported approximately 3.5 million cars in 2024, a much larger share of the US market.

If the President exempted large quantities of these cars, “then it doesn’t look like you have a 25 per cent auto tariff anymore”, Mr Harrell said. “He’d face political blowback.”

The Commerce Department and the Office of the US Trade Representative declined to comment. The White House did not respond to a request for comment.

For now, foreign governments appear wary of making substantial commitments on trade, only to see US tariffs rise or potentially fall. The Trump administration is awaiting the outcome of a significant court case on whether the reciprocal tariffs are lawful. That decision could come this autumn.

Mr Jake Colvin, the president of the National Foreign Trade Council, a trade organisation that advocates open trade, said other countries were “looking for certainty” in deals with the Trump administration. But uncertainty continues because investigations under the 232 national security provision are still under way.

“Countries do want to make deals with us, but they are not going to agree to anything final until they know the status of the 232 investigations,” he said.

Part of the confusion is because trade negotiations are being handled by various departments.

Mr Greer and his office focus on negotiating tariffs and other trade irritants. But the 232 tariffs fall under the authority of the Commerce Department, which is juggling multiple investigations and other priorities.

Some foreign officials have said they have little clarity from the Commerce Department about the likelihood of exceptions.

Dr Philip Luck, an analyst at the Centre for Strategic and International Studies, said foreign governments were experiencing “a lot of frustration and confusion”, in part because countries have been negotiating with multiple officials. They have been hearing different things from different principles, and also been told that all their agreements were contingent on Mr Trump’s approval.

“There doesn’t seem to be anybody in charge,” Dr Luck said.

NYTIMES