NEW INTERNATIONAL TRADE NORMSU.S.-UK Trade Deal Illustrates Trump’s Shifting Trade Policy
The U.S.-UK trade agreement is Trump’s first since his “Liberation Day” tariff announcements. It could be a possible template for other nations seeking a deal, but it could also have major implications for global trading norms.
The United Kingdom (UK) secured the first trade deal with the Donald Trump administration this week, setting a possible template for other nations. While it’s not a full-fledged agreement, it addresses President Trump’s recent tariff hikes, sets priorities for cooperation, and lays the groundwork for future discussions on a range of issues. The agreement’s five pages of text are minuscule compared to the phonebook size of most trade deals, which likely means the announcement’s immediate economic effect will be similarly small.
But trade deals are not just about economics. They are also a tool that can shape the system of rules by which two or more countries engage with each other—and the rest of the world.
This is exactly where this new deal gets interesting, so let’s break down the major takeaways.
A New Tariff Baseline
Trump’s “Liberation Day” announcement on April 2 set 10 percent tariffs on all imports. It also targeted additional “reciprocal” duties at countries with which the administration perceived a trade imbalance with the United States. While President Trump walked back the reciprocal duties, beyond those placed on China, the flat 10 percent rate stayed in place.
These tariffs are consequential. They alter the commitments that the United States has with the 166 member nations of the World Trade Organization (WTO), where each country agrees to cap tariff rates at certain levels with all members. This is commonly referred to as the most favored nation (MFN) rate. There are exceptions to MFN, often when two or more countries negotiate and sign a trade agreement that offers better rates between themselves. But this typically involves a comprehensive deal that covers all trade between the negotiating parties.
Why does this matter? In the newly announced U.S.-UK Economic Prosperity Deal, Trump’s 10 percent across-the-board tariff is preserved. This means that this is a new baseline tariff for the United States, and its acceptance by the UK signals that it may become the de facto U.S. MFN rate. This has important consequences for two reasons. First, more than 80 percent of global trade takes place under MFN terms, and accepting unilateral revisions to it opens the door for other countries to take similar action. Second, with the UK unable to successfully push for its removal, countries next up in the negotiating queue may be locked into a similar fate.
