Take  it  or  Leave  It:  Trade  deal-making  under  Trump

STEPHEN MORAN

26  JUNE  2025

 The  US  is  building  a  new  trade  model  featuring high  tariffs,  managed trade  and  less  predictable  policy settings.  But  Washington can’t  wreck  rules-based trade  by  itself; it  will  need  willing  participants. President  Trump’s trade  “deals” —  which  are  being  negotiated  under  the  threat  of  punitive  tariffs —  demand  countries favour  US  business interests  over  their  own  trade  obligations  or  domestic  regulatory considerations.

 Trump’s  bilateral  “deals” are,  in  many  respects,  unfair.  They  are  being  negotiated  under  duress.  The  US  is  offering  concessions only  on  its  newly  threatened tariffs.  And  the  deals  overlay legally  binding  trade  agreements,  passed by  acts  of  Congress,  that  are  being  ignored.  This  lack  of  durability  makes  the  deals  unstable  and  potentially  reversible  by  either  party.  So,  US  trading  partners will  have  added  incentive  to  reinforce  their  trade  relationships with  each  other.

 Whether  as  part  of  negotiations or  in  a  government-to-government  letter, countries  are  facing take-it-or-leave-it  offers.  The  removal  of  the  threat of  US  tariffs is  the  big  attraction.  But  governments  must  also  weigh  up  reputational cost.  A  country that  accepts  managed trade  with  the  US  would  lack  conviction in  advocating  rules-based trade  elsewhere.

 Looming  deadlines

The  next  phase  of  US  tariff policy  will  coincide with  the  8  July  (10  August  for  China)  expiration of  Trump’s  90-day pause  in  the  implementation  of  his  punitive “liberation  day”  tariffs. US  trading  partners will  be  divided into  three  camps:

(1)  those that  reach  a  trade  “deal” with  the  US;

(2)  those hit  with  US  reciprocal  and  sector-specific  tariffs (where  applicable)  because they  won’t  accept US  market  access demands;  and

(3)  those allowed  further  time  to  conclude negotiations.

 Eight  of  Australia’s  top  ten  export markets  feature  in  the  US  list  of  its  ten  biggest  bilateral trade  deficits,  so  face  high  reciprocal  tariffs from  9  July:  China  (34  per  cent  reciprocal  tariff), Japan  (24  per  cent),  South  Korea  (25  per  cent), India  (26  per  cent),  EU  (26  per  cent),  Taiwan (32  per  cent), Vietnam  (46  per  cent),  and  Thailand  (36  per  cent). Those  eight  countries account  for  60  per  cent  of  Australia’s total  two-way  trade.

 No  off  ramps

US  domestic effects  of  Trump’s tariff  policies  have  so  far  been  negligible. The  highest  tariffs have  either  been  suspended  (as  with  the  reciprocal  tariffs) or  haven’t  yet  come  into  force  (as  with  most  of  the  sector-specific  tariffs). Tariff  hikes  that  have  been  fully  implemented, such  as  on  autos,  haven’t yet  fed  into  prices,  partly because  exporters  built  up  their  inventories  in  the  US  in  anticipation of  higher  tariffs.

 Facing  no  visible  adverse consequences,  Trump  recently doubled  the  tariff on  steel  and  aluminium  to  50  per  cent,  and  threatened  to  make  a  similar  move  on  autos  in  order  to  encourage  more  investment in  domestic  production.

 The  inflationary impact  of  tariffs for  the  US  economy  has  only  been  postponed.  Steel  and  aluminium tariffs  will  feed  into  thousands of  products  for  which  they  are  inputs. And  the  Trump  administration  is  extending  the  product  coverage of  those  tariffs. In  mid-May  the  Commerce  Department announced  that  tariffs on  steel  and  aluminium  would  be  expanded to  cover  home  appliances  including dishwashers,  dryers  and  washing  machines.

 The  only  laws  that  matter

US  legal  challenges  are  throwing  sand  in  the  gears  of  Trump’s  trade  agenda,  but  they  won’t  force  him  to  change course.  In  late  May  the  Court  of  International  Trade  (a  Federal US  court)  found  that  Trump  exceeded  his  authority  under  the  International Emergency  Economic  Powers Act  (IEEPA)  by  using  it  to  impose tariffs  and  ruled  them  unlawful. Separately,  a  Federal District  Court  found  that  the  president  cannot impose  tariffs  under  IEEPA.

 Those  court  rulings  were  both  stayed subject  to  appeal, but  IEEPA  is  not  the  only  statute which  the  president can  use  to  apply  punitive tariffs.  Trump  has  already  used  specific  trade  laws  which  are  just  as  effective in  penalising  and  pressuring  trade  partners,  although they  are  more  process-bound  (for  example,  requiring consultations  with  affected domestic  parties).

 Under  Section 301  of  the  Trade  Act  1974  the  US  Trade  Representative  can  investigate  foreign trade  barriers  and  recommend  compensatory tariffs.  S.301  was  the  basis  of  Trump’s first-term  tariffs  on  China  and  his  so-called Phase  One  trade  deal  with  China.

 And  under  Section  232  of  the  Trade  Expansion Act  1962  the  Commerce  Department can  investigate  whether imports  of  certain goods  threaten  national security  and  recommend industry  protection.  S.232  was  the  basis  of  US  tariffs and  quotas  on  imports  of  steel  and  aluminium  in  Trump’s  first  term.

 S.232  investigations  launched since  10  March  cover  copper, timber  and  lumber, semiconductors,  pharmaceuticals,  heavy  trucks,  processed critical  minerals,  and  commercial  aircraft and  jet  engines. Those  investigations  will  likely  recommend new  tariffs  or  other  industry protection.

 So  even  if  the  courts  strike down  the  reciprocal tariffs  the  growing patchwork  of  S.232  tariffs  could  become  a  de  facto  global tariff.

 Some  deals  are  bigger than  others

Washington  argues that  the  trading system  allows  countries to  discriminate  against the  US  and  that  its  actions  are  aimed  at  making  the  system  fair.  But  early  signs  from  US  bilateral negotiations  indicate  its  notion  of  a  fair  system  is  one  that  discriminates  in  favour  of  US  interests.

 Negotiations  have  been  underway with  about  15  trade  partners -  generally  those  with  which  the  US  has  its  biggest  merchandise trade  deficits.  Washington will  send  letters  to  dozens  of  other  countries by  the  end  of  June  outlining  the  terms  of  trade  deals, which  they  can  either  embrace or  reject.

 Australia  is  likely to  be  one  of  those  countries  facing a  “take-it-or-leave-it”  letter. If  Trump  decided to  restore  tariff-free access  for  US  FTA  partners, we  could  see  the  shape  of  a  deal  he  could  claim  as  a  victory:  one  that  gives  the  US  preferential  access to  Australia’s  proposed strategic  reserve  for  critical  minerals. But  should  America-first thinking  prevail,  Washington would  only  offer  Australia  relief from  S.232  tariffs (currently  applying  to  steel,  aluminium and  auto  parts) in  exchange  for  Australia  moving on  US  regulatory demands,  including  on  services  issues such  as  Australia’s  screen  content requirements  on  streaming platforms.  

 Such  a  “deal” would  be  like  the  first  US  deal,  with  the  UK,  with  Australia  forced to  accept  a  10  per  cent  tariff plus  managed  trade  for  goods  covered  by  S.232  tariffs. A  10  per  cent  duty  isn’t  as  bad  as  it  may  sound  because it  is  likely to  apply  to  all  our  competitors.  (We  would  lose  the  FTA’s  marginal  preferential tariff  benefit  for  those  goods  with  US  applied  MFN  tariffs  above  zero.)  And  Australian  exporters would  be  attracted to  tariff  quotas or  “voluntary”  export restrictions  because  they  guarantee  a  certain  volume of  exports  at  artificially  high  prices.  

 The  US-UK  deal,  signed on  16  June  2025  is  just  a  framework  for  an  eventual deal.  Among  the  scant  specifics, the  UK  agreed to  reduce  barriers to  US  beef  and  other  food  products. The  UK  will  provide  preferential market  access  to  US  ethanol, showing  both  parties’ disregard  for  the  MFN  principle. The  “big  win”  for  the  UK  was  securing  an  import  quota  of  100,000 automobiles  under  a  tariff  of  10  per  cent  (down  from  27.5  per  cent). The  autos,  beef  and  ethanol commitments  take  effect this  month.

 From  Washington’s perspective,  the  UK  arrangement  provided impetus  for  its  negotiations  with  others.  The  tariff  quota  for  autos  will  likely be  the  preferred US  model  for  industries  subject to  S.232  investigations.  

 Trump  mints  his  own  negotiating  coin.  He  wants  to  retain the  10  per  cent  tariff as  the  baseline for  all  trading partners,  not  least  because  he  wants  a  significant  increase in  tariff  revenues. And  he  won’t  negotiate  cuts  to  any  US  trade  barriers  that  preceded  his  tariffs.  Agreements containing  real  trade  liberalisation  would  need  time-consuming  congressional approval.  

 When  the  EU  proposed tariff  reductions  by  both  sides  Trump  threatened to  double  his  20  per  cent  reciprocal tariff  on  the  EU  and  apply  it  almost  immediately. That  had  the  desired  effect. Brussels now  appears  likely to  accept  a  tariff  deal  like  the  UK’s:  a  10  per  cent  base  tariff  combined with  lower  tariff rate  quotas  on  sensitive  exports such  as  steel  and  cars.  

 In  addition, the  US  and  EU  appear to  be  close to  agreement  on  several  non-tariff issues,  under  which  the  EU  would:

·      Consult  with  the  US  on  the  EU’s  Digital Markets  Act  —  a  competition law  under  which  Apple  and  Meta  have  already  been  fined;

·      Coordinate  with  the  US  on  the  design  and  implementation  of  the  EU’s  carbon  border adjustment  mechanism,  under  which  tariffs would  apply  to  carbon-intensive  imports from  countries  with  weak  climate policies;

·      Exempt  US  energy  exports to  Europe  from  EU  methane rules;  and

·      Coordinate  on  defence  procurement and  critical  minerals.

 The  Commission wants  to  retain a  credible  threat  of  retaliation to  secure  a  better  deal  from  the  US,  but  there  is  no  consensus among  the  member states.  Brussels  retaliated against  US  steel  and  aluminium tariffs  in  Trump’s first  term.  But  Trump’s  readiness in  his  second term  to  counter-retaliate  with  extreme  tariffs has  spooked  member states.  An  early  Commission  proposal for  tariff  retaliation was  watered  down  after  France, Italy  and  other  alcohol-producing  nations complained  that  targeting US  whiskey  and  wine  risked retaliatory  US  tariffs of  up  to  200  per  cent.  

 China  syndrome

US  gripes with  Beijing  can’t  be  settled by  its  10  August  negotiating deadline.  The  issues go  to  the  heart  of  China’s  state  economy  model  and  the  factors  that  make  it  such  an  efficient  exporter of  manufactured  goods. US  tariffs  won’t  change  that  system:  that  was  demonstrated in  China’s  tit-for-tat responses  to  Trump’s tariff  hikes.  So,  the  most  likely  outcome of  the  bilateral negotiations  is  a  variation  of  the  Phase  One  agreement  of  Trump’s  first  term,  featuring Chinese  purchasing  targets.

 Even  if  Washington removed  the  34  per  cent  reciprocal  tariff on  China,  its  tariffs  would  be  high  enough  to  severely  constrain Chinese  exports  to  the  US  without  strangling them  entirely.  The  base  level  of  tariffs facing  Chinese  exports is  the  MFN  rate  agreed when  China  joined the  WTO  (which Washington  is  reviewing), plus  anti-dumping  and  countervailing  duties on  a  range  of  goods, plus  S.301  tariffs still  applying  from  Trump’s  first  term,  plus  the  10  per  cent  base  tariff applying  to  all  countries,  plus  the  20  per  cent  fentanyl  penalty, plus  any  S.232  product-specific  tariffs.

 The  US  is  using  the  threat of  reciprocal  tariffs not  just  to  prise  open  markets,  but  also  as  leverage  to  pressure countries  to  limit  their  dealings with  China.  Washington wants  its  trading partners  to  prevent China  from  trans-shipping  goods  (and  thereby circumventing  US  tariffs) and  to  block  Chinese  investment in  manufacturing  aimed  at  export to  the  US.  

 Dodgy  durability

Trump’s  “deals”  are  concluded  under  presidential  authority (the  UK  agreement was  signed  under  Executive  Order), which  — as  Trump  has  repeatedly demonstrated  —can  be  overturned with  a  presidential signature.  This  raises questions  about  whether Trump’s  successor  will  enforce  the  deals,  demand more,  or  chart  a  different course.

 Even  before the  end  of  Trump’s  term  some  US  trade  partners might  abandon  their  bilateral  deals. Governments  will  face  domestic  political scrutiny  over  the  the  way  deals  were  negotiated  and  their  lack  of  balance. The  commercial  elements also  lack  stability. Governments  can  make  purchasing  promises, but  market  conditions change.  And  if  the  UK  deal  is  a  guide, US  import  quotas won’t  grow  over  time  — undermining  their  commercial  value.

 The  very  nature  of  Trump’s  deals  will  encourage US  trading  partners to  reinforce  their  trade  relationships with  each  other. There  are  already signs  of  renewed interest  in  bilateral FTAs.  And  the  Comprehensive  and  Progressive  Partnership for  Trans-Pacific  Partnership (CPTPP)  has  a  lengthy  list  of  economies seeking  accession.

 Concerns  are  likely  to  be  kept  under  wraps  amidst  the  triumphalism  and  relief  of  the  bilateral “deals”  that  are  announced  in  coming  weeks. Even  so,  any  deal  that  the  US  forces  on  a  trading partner  is  inherently unstable  and  potentially reversible.  And  that  is  not  a  sound  basis  for  predictable  trade  and  investment decision-making.

Stephen  Moran  is  an  independent  trade  analyst.  He  was  Senior Trade  Analyst  in  the  Office of  National  Assessments from  2010-  to  2021.  Before that,  he  held  various  trade  policy  roles  in  the  Department  of  Foreign  Affairs and  Trade  and  the  former Department  of  Trade.

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