Trump’s tariffs signal a new era of friction for world trade

Trading partners of the US will pay tariffs from today, after a delayed deadline imposed by Donald Trump expired.

So what? Welcome to a new era of friction for world trade. Trump says the tariffs will rewire the global economy in favour of the US, attracting investment and creating manufacturing jobs. But economists fear they will drag down growth and fuel inflation for American consumers.

It could be months, possibly years, before the effects of the measures are clear. They mostly target countries that sell more to the US than they buy.

Trade talks. Before the door swung shut, several countries struck deals with Trump. These cover about 60 per cent of US imports that had been threatened with “reciprocal tariffs”, and they avoid higher levies rather than eliminating them.

• The UK’s tariff rate has been reduced from 25 per cent to 10 per cent;
• Vietnam’s went from 46 per cent to 20 per cent.
• The rate for Japan was trimmed from 25 per cent to 15 per cent.

Eleventh hour. Many trade talks went down to the wire. Some ended without agreement. There were no deals with India or Canada, for example. Mexico was granted a last-minute extension. Meanwhile China, which previously threatened steep retaliation, has a deadline of 12 August.

Bullyboy. Trump’s negotiating tactics involved making extreme demands and threatening to curtail access to the US’s lucrative market. Politically, they have proved successful: several countries have agreed to tariffs on their exports while pledging to buy more American goods.

Case study. The deal with the EU, announced on Sunday, is particularly eye-catching. In addition to accepting 15 per cent levies on most of its exports to the US, worth €380bn a year, the bloc promised to

• invest some $600 billion in the US;
• buy American oil and gas worth $750 billion over three years; and
• purchase more American military kit.

For that, it dodged a higher rate of 30 per cent. France’s prime minister called it a “submission”. Spain’s leader said he supported it “without any enthusiasm”.

Template. The deal with Japan involved similar concessions. In return for lower tariffs, it will invest $550 billion in the US. The White House says this money will “rebuild and expand core American industries” including energy, shipbuilding and pharmaceuticals, with the US keeping 90 per cent of the profits.

Slump. Trump first announced the tariffs in April. They sent shockwaves through the global economy, causing the US stock market to plunge by roughly 10 per cent in two days. He subsequently paused them for 90 days to strike deals with other countries, prompting accusations he had “chickened out”.

Rebound. US stocks have recovered those losses, the economy is growing and employment is strong. Trump, who has seized on this as proof that his critics are wrong, is not backing down any time soon. His administration claims the tariffs rake in revenue worth hundreds of billions.

Forecast. An economic slowdown could still be on the way, especially since US companies are only starting to feel the tariffs’ impacts.

• Nike has warned it’s facing extra costs of $1 billion and is raising prices.
• Consumer goods giant Procter & Gamble has been hit by a similar bill and is also hiking prices.
• Ford expects the tariffs to wipe $2 billion from its annual earnings.

Warning signals. There are also some worrying trends behind the headline economic data. Imports to the US fell by 30 per cent in the second quarter of 2025, and private domestic investment is down. If this continues, it could heap more hurt on US businesses.

Courtside. The tariffs could yet be kneecapped by a legal challenge. In May a panel of three judges declared them illegal, saying the emergency powers invoked to apply them weren’t justified. The case went before the US appeals court yesterday.

What’s more…It was brought by a group of five small businesses, led by a New York wine importer. Trump has beaten several world leaders into submission, but these businesses could yet derail his trade war.

Photograph by Charly Triballeau/AFP via Getty Images