President Donald Trump on Thursday formalized the array of high tariff levels and trade deals he has announced in recent weeks, the latest escalation in his attempt to disrupt and reshape the global economic order.
In a sweeping executive order, Trump made official his agreements with prominent trading partners such as the European Union, Japan, South Korea, the United Kingdom and the Philippines.
Trump’s order, which came hours before a self-imposed deadline for trade deals, also unilaterally sets rates for countries that did not reach agreements with him, for example, Israel, Switzerland and Taiwan. Switzerland’s rate will be set higher than previously threatened, at 39%, while Taiwan’s will be set lower, at 20%.
It’s effectively a reset of the world’s trade relations, one that is ostensibly designed to benefit the United States with expensive tariff rates not seen in nearly a century.
Trump believes taxes on imported goods will erase trade deficits and bring back manufacturing to the United States. He has touted the $125 billion in revenue his already-existent import taxes have brought in, with hundreds of billions more pledged by a handful of countries in the form of investments. Yet it has come at the cost of slower economic growth and the prospect that already-stubborn inflation will reheat.
Trump’s order Thursday says the new duties will not take effect until Aug. 7.
Goods shipped by vessel will not be affected by the new tariff rates until Oct. 5. Those products would need to be shipped by Aug. 7, but if importers don’t take them out of the port or a warehouse for sale, the new rates won’t apply for months. Items arriving on ships account for more than half of U.S. imports, according to the Transportation Department.
Trump and top administration officials had insisted this week there would be no further delays after the 12:01 a.m. ET Friday deadline. In fact, just hours before the White House released Thursday’s executive order, Commerce Secretary Howard Lutnick shouted to reporters outside the White House that there would be “no extension” to the deadline.
But earlier Thursday, Trump did agree to a 90-day extension on talks with Mexican President Claudia Sheinbaum. Mexico is the United States’ largest individual trading partner. Treasury Secretary Scott Bessent also told CNBC on Thursday morning that he and Trump would be discussing an extension of China’s tariff deadline, which is coming up on Aug. 12. And Lutnick said days ago that countries could keep talking with the Trump administration after the Friday deadline.
With the newly signed tariffs not taking effect right away, uncertainty is likely to linger for consumers and businesses trying to plan for the rest of the year and beyond.
“Some will argue higher tariffs will be compensated by lower uncertainty,” analysts with Bank of America wrote in a note to clients this week upon the announcement of an agreement with the European Union. “And yes, uncertainty could come down in the near term, but we doubt it will go away.”
An unnamed manufacturer in a Dallas Federal Reserve survey released this week put it bluntly: “Tariffs. Tariffs. Tariffs. Did I mention tariffs?”
Inflation and the Fed
As the new tariffs keep the economy on edge for two more months, the Federal Reserve will also try to work out what the effects will be.
On Wednesday, Fed Chair Jerome Powell said the central bank’s policymakers thought there was still “a long way to go to really understand” what the effects will be and how the duties will play out. That could mean interest rates are likely to remain on hold.
Powell laid out his thinking, saying: ” If you move too soon, you wind up maybe not getting inflation all the way fixed and you have to come back. That’s inefficient. If you move too late, you might do unnecessary damage to the labor market.”
Even during Powell’s news conference, Trump announced more tariffs on copper imports.
Inflation remains above the central bank’s 2% target, and it has started to tick up recently. In June, the consumer price index rose to a 2.7% annual rate, up from 2.4% in May and 2.3% in April.
Further delays to introducing the new tariff rates could lead to another rush of imports into the country. That, in turn, could also temporarily affect economic data, making it harder for policy makers to set interest rates or for businesses to plan.
How we got here
Trump initially delayed the tariffs he unveiled in the spring, prompted by a historic market sell-off following his April 2 announcement. The Trump administration then vowed 90 deals in 90 days. It has been more than 90 days, and there are nowhere near 90 deals. Instead, Trump has announced just a handful of agreements and unilaterally imposed tariffs on dozens of countries.
One country, Brazil, is now subject to more punitive measures in the form of a 50% tariff that Trump pegged to coup charges brought against former President Jair Bolsonaro, a Trump ally. Another, South Korea, was allowed to “buy” its way to a 15% duty, down from a threatened 25%, by pledging massive investments into the United States. Indonesia and the Philippines were also the subjects of deal announcements.
According to the Yale Budget Lab, a nonpartisan think tank, the average effective tariff rate will stand at about 18%. Tariffs are a tax on imports — and, contrary to Trump’s assertions, the country of origin isn’t directly responsible for paying the tax. Instead, the cost of the tariffs tends to get picked up by the importing company — and ultimately, in many cases, U.S. consumers. The Budget Lab says they add about 2% to price indexes, which it calculates as equivalent to more than $2,000 per year for a typical U.S. household.
The Trump administration is banking on a return of production jobs to the United States as tariffs increase the cost of imports. So far, there has been little evidence of a pick-up in manufacturing employment — though some of that is attributable to the Federal Reserve’s decision to hold rates steady. Still, the National Association of Manufacturers has continued to call for “zero for zero” tariffs that reduce trade barriers on both sides.
And while the S&P 500 has returned to all-time highs, it has been showing signs of losing momentum and was on pace for a losing week despite blowout reports from the tech firms that now make up increasing proportions of the index.
Tariffs have so far raised billions in government revenues that will help shave the federal deficit — but will come nowhere near to creating a surplus. Even House GOP members said in a release this year that when it comes to the United States’ fiscal imbalances, “revenues are not the problem.”
Meanwhile, measures of inflation continue to pick up, raising the prospect of stagflation. The National Retail Federation has said tariffs “threaten the American dream” while hurting small businesses.
The Friday deadline was designed to bring renewed certainty. Instead, businesses are having to accept “an uptick in relative certainty,” said Jose Torres, senior economist at Interactive Brokers financial group. If there is a silver lining, it is that tariffs may be largely affecting the pace of price growth for goods, not services — and services now power most of the U.S. economy.
“Back in April we thought we’d go into a recession because of tariff levels that high — that will move the needle,” Torres said. “Right now, the landscape is quite buoyant.”
Yet Torres said Trump was likely to be unable to put tariffs questions fully behind him even after Friday’s deadline, especially if countries start to pique his ire. Already, Trump announced another 90-day extension for previously negotiated tariff levels on Mexican imports, many of which are exempt thanks to the pre-existing USMCA trade agreement.
“I’m expecting it to remain somewhat of a theme,” Torres said, noting that the swing states that helped deliver Trump back into the Oval Office continue to clamber for manufacturing jobs. “He’s going to try to deliver on that.”