Josh Balk and Paul Wiseman
WASHINGTON (AP) – President Donald Trump is moving towards the global economy.
The trading partners from the European Union to Japan and Vietnam appear to be complying with the President’s demands that they accept higher costs in the form of high tariffs due to the privilege of selling goods to the United States. For Trump, the agreement driven by a mix of threats and Kaholing is a decades of belief in protectionism and the realization of massive gambling that pays off politically and economically with American consumers.
On Sunday, the US and the 27-member European Union announced that they had reached a trade framework agreement. The EU agreed to accept 15% US tariffs on most goods, easing fears of the devastating Atlantic trade war. According to the White House, the EU has purchased $750 billion in US energy products and has pledged to make $600 billion in new investments by 2028.
“We just signed a very big trade deal, the biggest deal of all of them,” Trump said Monday.
However, there is no guarantee that a radical overhaul of Trump’s US trade policy will provide the happy ending he promised. The framework agreement was very affordable for details. Most trade transactions require months and even hard and hard negotiations.
High Stakes negotiations break Trump’s path
Financial markets seem to have panicked at first by the president’s protectionist agenda, and acquiesced to the world, where the US import tax (duty) is the highest tax rate in around 90 years. Billions of new revenue from his taxes on foreign goods have been poured into the US Treasury Department, which could somewhat offset the massive tax cuts that he signed the law on July 4th.
External economists say high tariffs are likely to raise prices for American consumers, lower Federal Reserve interest rates, and reduce efficiency over time in the US economy. Democrats say middle class and poor people will ultimately pay for tariffs.
“It’s pretty impressive to see it as a sigh of a moment of relief,” says former Biden White House economics officer Daniel Hornn, who currently holds fellowships at the Housing Finance Policy Center and the Massachusetts Institute of Technology. “But if all trading partners have a new baseline of 15%, that’s a meaningful resistance to growth that is increasing the risk of a recession, while also making it difficult for the Fed to cut.”
The EU agreement comes just four days after Japan agreed to 15% US tariffs and investment in the US. Previously, the US reached a deal that raised tariffs on imports from Vietnam, Indonesia, the Philippines and the UK from quite a distance from where they were before Trump returned to the White House.
More unilateral trade transactions could occur if the country beats Friday’s deadline and then places higher tariffs on countries that Trump refuses to make concessions.
Trump’s long-standing theory now faces reality
The US president has long argued that by not exploiting its influence as the world’s largest economy, the US has made mistakes, setting up tariff barriers, effectively allowing other countries to access the large US consumer market.
His closest aides tested Trump’s use of tariffs to his belief that confidence in his negotiator skills and economists who warned him about recession and inflation. Stocks rose slightly Monday morning, at once unthinkable risky tariffs.
“Where are the “experts” now? “Commerce Secretary Howard Lutnick posted to X.
But the story isn’t over. For one thing, many of the details of Trump’s trade deals remain somewhat hazy and not captured in writing. For example, the US and Japan offer various explanations of the Japanese agreement to invest $550 billion in the US.
“Trade transactions appear to be counting as a qualifying victory for Trump, and other countries are giving positive US trade terms while accepting US tariffs,” said Eswar Prasad, economist at Cornell University. “However, certain terms of transactions, such as investments in the US in other countries, seem abstractly more promising than they actually prove over time.”
Trump is also facing court challenges from states and businesses that claim that the president has stepped over his authority by declaring a national emergency to justify most tariffs in the world economy. In May, federal courts broke these tariffs. And the appeals court, which agreed to continue collecting tariffs for now, will hear verbal debate in Thursday’s case.
And he still doesn’t match China. This cleverly uses the threat of retaliatory tariffs desperately needed for electric vehicles, computer chips, and wind turbines and the threat of withholding rare earth minerals to avoid caves to Trump’s demands. The US and China are talking this week in Stockholm, Sweden.
Economists are skeptical of the impact on US consumers
There is also skepticism that tariffs will create the economic boom that Trump claims.
Analysts at Morgan Stanley said “the most likely outcome is slow growth and solid inflation,” but it’s not a recession. Ultimately, the 15% tariffs in the EU and Japan are only slightly up from the 10% rate that Trump began prosecuting in April during the negotiations.
Cars made in the EU and Japan will no longer face the 25% tariffs imposed by Trump, but they will face a 15% tax that has not yet appeared on US dealer prices. The administration says the lack of rising car prices suggests that foreign producers are absorbing costs, but may simply reflect the accumulation of car inventory to ultimately implement import taxes.
“Dealers have built up stocks prior to the implementation of tariffs, weakening the immediate impact on retail prices. The cushion is beginning to wear thinly,” Morgan Stanley said in another memo. “Our auto analysts point out that once pre-duty stock is cleared, replacement vehicles are likely to carry a higher price tag.”
Mary Lovely, an economist at the Institute for International Economics, warned of “slow burn efficiency losses” by scrambling American companies to adapt to Trump’s new world. For decades, American companies paid almost the same tariffs.
Currently, as a result of Trump’s trade transactions, tariffs vary by country. “U.S. businesses need to change their designs and get inputs from different locations based on these variable tariff rates,” she said. There are all these things that act as long-term drag on the economy, but their effects only appear slowly. ”
Mark Zandy, chief economist at Moody’s Analysis, said the effective tariff rate in the US rose to 17.5% from around 2.5% at the beginning of the year.
“I’m not going to take a victory lap,” Zandi said. “The economic damage caused by higher tariffs will increase in the coming months.”
Original issue: July 28, 2025, 2:56pm EDT
