Scott P. from Montgomery, AL asks: Hi Mitch, it looks like some of the trade deals we’ve been waiting for are coming through, with the big UK announcement last week. Do you think bluer skies are ahead for the markets as more deals get announced in the coming months? I appreciate your time.
Mitch’s Response:
Thanks for sending in your question. Since you emailed, the U.S. and China have also agreed to a 90-day rollback of their tit-for-tat punitive tariffs, which saw the tax on Chinese imports spike to 145%. The relief rally in stocks following the announcement was swift and strong.
I’ll touch more on what the China deal contained. But first, let me offer a bit more color on the ‘deal’ with the U.K., which was not actually a trade agreement. The two countries agreed to a framework to make a deal over the next year, or to put it another way, they made a deal to make a deal later.1
To be sure, there were some bright spots in the announcement. The agreement rolls back certain U.S. tariffs on British steel and automobiles in exchange for increased purchases of Boeing jets and expanded U.K. market access for American agricultural products. Additionally, the U.S. will allow Rolls-Royce jet engines and parts to enter tariff-free.
However, the framework leaves key tariffs firmly in place, most notably the blanket 10% levy that applies to all U.S. trading partners—a policy shift that has raised the effective U.S. tariff rate from an average of 2.4% to a floor of 10%. For the U.K., this means its largest export to the U.S.—automobiles—remains subject to steep duties. The U.K. failed to secure an exemption from the blanket tariff, reinforcing that the universal 10% remains a largely fixed element of U.S. trade policy. In my view, that keeps an economic negative in place – trade is still less free than it was before.
Shifting over to China, both sides agreed to cut tariffs substantially – China down to 10% and the U.S. from 145% down to 10% baseline, plus the separate 20% tariff the U.S. imposed over fentanyl-related grievance, plus 10% from President Trump’s first term. The overall effective tariff rate on Chinese imports can still be as high as 40%. For markets, however, the tariff reductions were larger than expected, which I think led to a sharply positive response. But the reprieve is also temporary, set to last only 90 days while negotiations continue toward a broader agreement. It does not seem likely that a broad agreement can be reached in just 90 days, but time will tell.
Overall, despite the headline progress we saw in both cases, the path forward remains uncertain and it is unclear what actual trade agreements will look like. In my view, this lack of clarity will continue to impact market volatility and economic growth for the foreseeable future, with a 10% universal tariff almost certainly resulting in some addition to inflation as well. Markets may be choppy and growth could decelerate, but the important takeaway for investors is that I think the direction of travel from “Liberation Day” has been positive, and there’s still plenty of room for positive surprises.
Disclosure
1 Wall Street Journal. May 8, 2025. https://www.wsj.com/economy/trade/trump-us-uk-trade-deal-de54d812?mod=economy_feat2_trade_pos1
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