Trump’s Trade Deadline Brings Flurry of Activity

Trump at the White House on Thursday
Reuters
By Michael Rainey and Yuval Rosenberg

Good evening! Tomorrow, August 1, is President Donald Trump's deadline for dozens of trade deals. Here's what we're watching while also monitoring the other big trade deadline - today's, for Major League Baseball.

Trump's Trade Deadline Brings Flurry of Announcements

Aiming to rewire the global trading system to more explicitly benefit the United States, President Trump gave countries around the world until August 1 to negotiate new trade agreements with the world's leading consumer nation. As that deadline rapidly approaches, the White House has announced a flurry of new trade agreements and declarations:

  • On Thursday, Trump gave Mexico a 90-day reprieve from a threatened 30% tariff on imports into the U.S. not covered by an existing trade pact, leaving a 25% tariff in place. The move comes despite Trump's announcement Wednesday that the August 1 deadline would not be extended.

"The complexities of a Deal with Mexico are somewhat different than other Nations because of both the problems, and assets, of the Border," Trump wrote Thursday on his social media platform, following a phone call with Mexican President Claudia Sheinbaum

  • On Wednesday, Trump announced a trade agreement with South Korea that includes 15% tariffs on goods imported from the Asian industrial powerhouse, the 6th largest U.S. trading partner, as well as a pledge by South Korea to invest $350 billion in the U.S. economy. South Korea was facing a threatened 25% tariff starting on August 1.

  • Trump signed an executive order Wednesday imposing a threatened 50% tariff on imports from Brazil, while also slapping sanctions on the Brazilian Supreme Court justice who is managing the prosecution of former President Jair Bolsonaro, a Trump-like figure who stands accused of trying to overthrow the government. There are exemptions from the 50% tariff, though, including key U.S. imports such as aircraft and orange juice, as well as refined copper - a move that caused a record plunge in prices for copper in New York. Legal experts have questioned Trump's authority to link trade deals with the internal political decisions of foreign nations.

  • The U.S. is still working to reach a trade agreement with Canada, which faces the threat of a 35% tariff on goods not covered by the existing U.S.-Mexico-Canada trade pact. But Trump said Thursday that it would be "very hard" to make a deal following an announcement by Canada that it may recognize a Palestinian state, subject to certain requirements. Legal experts have questioned Trump's authority to link trade deals with the diplomatic decisions of foreign nations.

  • The White House appears to have hit a stumbling block in its talks with India, too, with Trump saying earlier this week that he plans to hit Indian imports with a 25% tariff on August 1. Trump has complained about India's protectionist tariffs, as well as its purchases of Russian oil and military equipment.

  • In addition to nation-specific tariffs, Trump has imposed sector-specific tariffs on various goods including steel, aluminum and vehicles. Returning to an executive order he signed in May, Trump on Thursday threatened 17 leading pharmaceutical manufacturers with higher tariffs unless they lower prices within 60 days. Trump demanded that manufacturers extend the "most-favored-nation price" to Medicaid beneficiaries for all drugs, and to all insured Americans for newly developed drugs. He also called on drugmakers to raise prices on "freeloading" foreign nations and to return some of their increased revenue to American consumers via lower prices.

What happens on deadline day: Trump is expected to sign an executive order Friday that defines a new minimum tariff for all imports. Trump announced a minimum tariff of 10% in April and has recently suggested that the new minimum could be twice that.

The White House may also send letters to dozens of countries that have failed to negotiate new trade agreements, informing them of the tariff that U.S. importers will have to pay to purchase goods produced in their countries. The threatened tariffs that could take effect first thing Friday include 32% on imports from Taiwan, 35% on Bangladeshi goods and 30% on South African goods.

Whatever the final numbers, the political divide over Trump's new tariff regime can be expected to continue. Expressing a view held by many Trump supporters, Republican Rep. Lauren Boebert celebrated the tariffs Wednesday. "I thought tariffs were going to destroy our economy?" she said. "I guess the experts were wrong once again."

Democrats, though, continued to rail against Trump's approach to tariffs, which are domestic taxes paid by U.S. importers and consumers. Senate Majority Leader Chuck Schumer called Trump's tariffs a "trade war on the American people" that is causing "chaos and uncertainty" throughout the economy. "No one knows what's coming when Donald Trump has no plan, no strategy, and he's not honest about what he presents," Schumer said Thursday.

Courts could intervene: Beyond political challenges, Trump's tariffs also face a potential legal hurdle in the form of a lawsuit from a mix of states and private companies questioning the legal basis for the president's trade policies. At a hearing Thursday, federal judges seemed sympathetic to the suit, which challenges Trump's use of the International Emergency Economic Powers Act of 1977. The White House claims that the IEEPA allows Trump to raise tariffs, given a supposed national emergency of a large trade deficit. The law has previously been used to impose sanctions but never tariffs.

"One of the major concerns that I have is that IEEPA doesn't even mention the word tariffs anywhere," said Judge Jimmie Reyna of the U.S. Court of Appeals for the Federal Circuit.

Other judges indicated that IEEPA was meant to be used during an international crisis, and that Trump was usurping legislative powers. "It's just hard for me to see that Congress intended to give the president in IEEPA the wholesale authority to throw out the tariff schedule that Congress has adopted after years of careful work, and revise every one of these tariff rates," said Judge Timothy Dyk.

Some judges, though, seemed more sympathetic to the claim that the trade deficit represents an "extraordinary threat" to the nation.

The case is expected to end up at the Supreme Court.

Inflation Ticked Higher in June as Trump's Tariffs Start to Bite

The Federal Reserve's preferred measure of inflation edged higher in June, the Commerce Department reported on Thursday. Consumer prices ticked up 0.3% for the month and 2.6% year over year, according to the government's Personal Consumption Expenditures price index. June's annual increase was slightly higher than the 2.4% rate as of May, suggesting that President Trump's tariffs might be starting to push prices higher.

Core prices, which exclude more volatile food and energy costs, also rose 0.3% for the month. They were 2.8% higher than a year earlier.

J.P.Morgan economist Michael S Hanson wrote in a note to clients that the latest data suggest that inflationary pressure rose over the second quarter of the year. Hanson pointed out that the three-month annualized rate of core PCE inflation climbed to 2.6% last month, up from 2% in May, which itself was revised higher from a previous 1.7%. "All told, progress toward bringing both wage and price growth down to levels consistent with the Fed's price stability mandate has stalled recently," Hanson wrote, adding that the data confirm that "tariffs are starting to pass through more significantly to consumers."

The data also presents a challenge for the Federal Reserve, which held interest rates steady yesterday despite continuing calls from President Donald Trump to lower rates. Fed policymakers must decide how to move forward in the face of conflicting economic signals. The labor market has shown signs of cooling, which would normally prompt the Fed to lower rates to stimulate economic activity, but inflation remains above the Fed's 2% target and could head higher because of Trump's tariffs, which would suggest that rates should stay high. Fed officials must also try to determine whether any pricing pressure from the tariffs is a one-time phenomenon or spirals into a longer-lasting problem. The Fed's Board of Governors is already divided, with two members dissenting from yesterday's decision to keep rates where they have been for a fifth straight meeting.

"The above-target rise in core PCE prices in June, upward revisions to previous months' data and the sharp rise in core goods inflation will do little to ease the Fed's concerns about tariff-driven inflation," Harry Chambers, an economist at Capital Economics, wrote in a research note Thursday. "If these pressures persist, as we expect, a September cut looks unlikely."

Chambers notes, though, that while inflation pressures are strong, other elements of Thursday's report provide ammunition to Fed officials who are ready to cut rates. Consumer spending ticked up 0.1% in inflation-adjusted terms, and personal income was flat after factoring in inflation. Economists see U.S. consumers becoming more cautious and facing further risks ahead.

"I think we're seeing modest growth in consumer spending," Gus Faucher, chief economist of The PNC Financial Services Group, told CNN. "The economy has definitely downshifted over the past year; we're seeing slower job growth, slower income growth and along with that is coming slower consumer spending growth."

What's next: Economists will be looking closely at tomorrow's jobs report, focused on both the health of the labor market and details about workers' hours and earnings.

Number of the Day: $200 Million

The White House press office announced Thursday that the White House building will undergo a $200 million renovation of its East Wing that will add an approximately 90,000-square-foot state ballroom that will be able to seat 650 people.

"The White House is one of the most beautiful and historic buildings in the world, yet the White House is currently unable to host major functions honoring world leaders and other countries without having to install a large and unsightly tent approximately 100 yards away from the main building entrance," the White House communications office said in a news release.

The project is set to begin in September and will be funded by Trump and other "patriot donors," according to the White House. It is just the latest in a series of changes that Trump has made to the building, including paving over the grass in the White House Rose Garden and installing two new flagpoles on the north and south lawns. Trump also has added noticeable gold elements throughout the Oval Office.

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