The U.K. and China trade agreements are welcome developments compared to President Trump’s April 2 liberation day.
These developments, while better than our situation at the beginning of the month, are a far cry from where we were at the beginning of the year.
W e’re finally hearing more details about how “a lot of countries want to make deals” that President Trump is purportedly negotiating. Over the past week, the administration has announced two trade developments resulting from the “liberation day” tariffs. Last week, the trade deal with the United Kingdom was touted as a “breakthrough” in delivering on his promise to “liberate Americans from globalist trade policies that make foreign countries rich while Americans get robbed.”
Then, the White House announced that the U.S. and China have agreed to a 90 day pause in their trade war. While this averts a major trade war, at least temporarily, we still don’t know what the final agreement will look like. These developments, while better than our situation at the beginning of the month, are a far cry from where we were at the beginning of the year.
Although some real gains have been made in relaxing foreign restrictions on U.S. exports, the administration has made an unforced error in increasing restrictions on U.S. imports — in the face of foreign opposition, no less! Let’s unpack these agreements and consider what they portend for future trade deals.
U.S.-U.K. Deal
When considering the results of a negotiation, we must compare the status quo to the new deal. Compared with the immediate past, the new deal with the U.K. brings down the tariffs that the U.K. charges the United States. Similarly, U.S. tariffs on British goods came down — especially on aluminum, steel, and cars. These developments benefit consumers and producers in both countries. All of this is very positive.
But when we compare the deal to trade arrangements in 2024, the benefits become murkier. After all, the global 10 percent tariff remains in place with only a couple exceptions, and the higher 25 percent tariff remains on several items. That is quite a bit higher than the 3.3 percent rate that the U. S. imposed on imported goods before so-called Liberation Day.
The deal clearly marks a political win for President Trump and, to an extent, Prime Minister Starmer. President Trump can now claim that he has made one deal, albeit only a “framework” of a deal. But international trade dynamics are complicated, and not all of President Trump’s constituents are happy with the deal.
Matt Blunt, president of the American Automotive Policy Council, said that prioritizing “the U.K. over our North American partners” would be detrimental to the U.S. automotive sector. He continued, “Under this deal, it will now be cheaper to import a U.K. vehicle with very little U.S. content than a USMCA compliant vehicle from Mexico or Canada that is half American parts. This hurts American automakers, suppliers, and auto workers.” Indeed, this sector is already reeling from the effects of the tariffs, with several automotive plants across the U.S. announcing layoffs and shut downs.
Prime Minister Starmer also faces sharp criticism. John Denton, the secretary general of the International Chamber of Commerce, said, “The reality is that U.S. tariffs on U.K. exports remain significantly higher than they were at the start of the year.” Kemi Badenoch, the Conservative Party leader, was even more direct in her assessment, saying, “We cut our tariffs — America tripled theirs. . . we’ve just been shafted!”
While the framework agreed upon by the U.S. and the U.K. takes a big step forward, both countries are starting from a couple steps back with Trump’s “reciprocal” tariffs. The agreement itself remains incomplete and mostly unspecified. Furthermore, the agreement retains a significant increase in U.S. tariffs imposed on the world on liberation day. President Trump has gained meaningful concessions from the U.K. moving towards freer trade. But if he wants to hit a home run, he can drop U.S. tariffs to pre-April levels.
U.S.-China Developments
On Monday, May 12, the U.S. and China issued a joint announcement that there would be a 90 day pause in their recent trade war. During this “cease-fire,” the U.S. agreed to lower its tariffs on China from 145 percent to 30 percent, and China agreed to drop its from 125 percent to 10 percent. China also agreed to lift its restrictions on the export of rare earth metals and magnets to the United States. Investors cheered the move, and the S&P rose over 4.5 percent while the Nasdaq rose over 6.6 percent.
The tariffs between the two countries had effectively created an embargo, with the volume of ships and shipping containers coming into the U.S. from China declining dramatically since April. This led to job losses at U.S. ports, in warehouses, and in the trucking industry. Maintaining these prohibitively high tariffs would have led to problems in both countries.
This new deal successfully averts this, albeit only temporarily. Insofar as tariffs and trade restrictions have come down since the beginning of the month, this is clearly good. But as with the U.K. deal, we need to contextualize this victory. Trade policies between the U.S. and China at the beginning of 2025 were certainly a far cry from “good.” In 2022, the U.S. Trade Representative issued a report breaking down foreign trade barriers on a country-by-country basis. That its entry on China comes in at a staggering 40 pages, longer than any other country’s entry by a considerable margin, is telling.
However, those terms were likely better in many ways than what we have today. China’s non-tariff barriers to trade imposed on the U.S. remain in place, and U.S. tariff rates imposed on China remain higher than they were at the beginning of 2025. Both countries have more to bring to the bargaining table. Perhaps the last month of tariff brinkmanship was enough to show that both countries face significant consequences from fully severing trade relationships.
What These Deals Portend
These trade agreements are welcome developments compared to President Trump’s April 2 liberation day. The global minimum tariff rate, plus much higher “reciprocal” tariffs, shocked the world. Most of these high tariffs were paused for 90 days on April 9 amid market turmoil, though China remained an exception.
This constant whiplash of tariff rates suggests there isn’t a coherent plan. The lack of clarity creates paralyzing uncertainty for U.S. businesses. Though the April jobs number was strong, first quarter GDP growth was anemic. As disruptions in trade work their way through the global economy, we will likely see other problems emerge. No one disputes that tariffs are taxes; but many in the administration insist that the tax is not primarily paid by Americans, though there is a great deal of evidence to the contrary.
While the U.S. manufacturing sector languishes, consumer confidence plummets, and the overall economic outlook shows signs of weakness, there is one clear winner in the United States: bonded warehouse owners, who have made a fortune out of this trade uncertainty. A bonded warehouse is a special warehouse where importers can store their goods and defer their tariff taxes until those goods are taken out of the warehouse. Normally, these are used by firms to more closely align the tax burden for the tariffed goods with when the goods are actually used and sold, thus better aligning cash flows.
With skyrocketing and sweeping tariff rates, along with a president who regularly changes his mind, many importers are using bonded warehouses to wait for the storm to pass. During more normal times, bonded warehouse owners will charge importers $17.50 per pallet stored for each pallet of goods sold. Today, they’re commanding a price as high as $150 per month. It appears the surge in bond warehousing will pay off for most companies as they now will pay 30 percent rather than 145 percent.
These bonded warehouses help explain, in part, why tariff revenues have failed to live up to the hype. They also, along with the long shipping times across the ocean, explain why the U.S. has thus far experienced relatively little pain from these tariffs. With this recent pause in the U.S.-China trade war, we should expect these bonded warehouses to start emptying fast as importers seek to minimize their tariff burden.
If the U.K. deal is a reliable indication, we should expect an overall lowering of trade barriers between countries compared with what is currently in place. The gains in freer trade concessions from other countries will be offset by higher U.S. domestic tariffs. Real progress will require changing course on U. S. tariffs — a change unlikely to be made by President Trump. Fortunately, other parts of Trump’s overall economic agenda — lowering taxes, cutting onerous regulations, and reforming education — will boost the domestic economy, and (one hopes) offset the U.S. tariffs put on the global economy.
Trump shone a spotlight on unfair and unhelpful trade restrictions other countries imposed on U.S. businesses. He has achieved modest success in rolling some of these restrictions back, at least in the U.K. Presumably, we can expect similar successes with other countries and other trade deals. Unfortunately, the Trump administration has left money on the table by retaining higher protectionist tariffs than before liberation day.
We all know that if you find yourself in a hole, you should stop digging. The Trump administration has stopped digging. Now they should put aside the shovel, climb out of the hole, and embrace the freer trade they are attempting to strong-arm from the rest of the world.
David Hebert and Paul Mueller are Senior Research Fellows at the American Institute for Economic Research.