The Yangshan Port in Shanghai, China, on Feb. 1.THE NEW YORK TIMES/The New York Times News Service
Strike up the band and break out the champagne. Happy days are here again. Right?
After the United States and China announced a significant reduction in tariffs against one another, the S&P 500 index shot up more than 3 per cent on Monday. This is the latest retreat in U.S. President Donald Trump’s unilateral global trade war, and the latest bounce for the markets.
The S&P 500 has rebounded back to higher than before “Liberation Day,” April 2, when Mr. Trump stood in the Rose Garden and played dystopian Price is Right with his big board of so-called “reciprocal” tariffs – European Union, 20 per cent tariff; Japan, 24 per cent; Britain, 10 per cent; China, 34 per cent, and so on.
The Trump administration also levied additional tariffs on steel, aluminum and cars – with Canada only partly exempted under the United States-Mexico-Canada (USMCA) trade agreement – and “fentanyl tariffs,” which also hit Canada. Plus there were extra tariffs on China, bringing the combined tax on Chinese exports to the U.S. to a vertiginous 145 per cent, effectively an American embargo on China. China retaliated with tariffs of 125 per cent, basically an embargo on imports from the U.S.
But now all that is being reversed. The U.S. and Britain announced a tariff-lowering agreement last week, and after negotiations in Switzerland, the U.S. and China did the same on Monday. The markets are exuberant.
The exuberance is excessive.
Look at what Mr. Trump has done in the last few months, and measure it against how much he has undone. Things have not come full circle.
U.S. tariffs are not back to where they were at the start of 2025, or where they were for decades before. And the Trump administration has given every sign that it does not want to return to the world of low tariffs, or binding multilateral trade deals.
Wars often end with an agreement to return to the status quo ante bellum – the situation as it was before the shooting started. That’s how the War of 1812 ended (and why, ahem, the border is still there). It’s not how the Trump trade war is ending, nor is it how the Trump administration says it wants it to end.
Take the deal (really more of a framework to negotiate a deal) between Britain and the U.S. Remember that 10-per-cent Liberation Day tariff? Britain is still subject to it. Some sectors, such as aerospace, may get a reprieve, but most British exports to the U.S. now face a 10-per-cent tax.
Beyond the chummy language of the announcement of the deal with Britain – the Trump administration played this as a special deal for a special friend – the U.S. has erected a tariff wall against a close ally. The wall is many times higher than it has been in decades.
This is not status quo ante. It’s status quo minus, with a big, honking minus sign.
And while the 145-per-cent Trump tariff on China is gone, in its place is a 30-per-cent tariff – that’s a 20-per-cent “fentanyl tariff,” plus the same 10-per-cent baseline tariff as Britain.
The Trump administration is positioning the fentanyl tax as something to be negotiated away, but it consistently describes the 10-per-cent tariff as a universal tax that all imports will be subject to.
Treasury Secretary Scott Bessent, who negotiated the de-escalation with China, said on Monday that the 10-per-cent tariff is a “floor,” and any suggestion that it could be lowered through negotiations with China was “implausible.”
And the new U.S. ambassador to Canada, Peter Hoekstra, said on the weekend that the 10-per-cent duty in the sort-of deal with Britain is “an example of where we will be moving in the future” with other countries. Asked if Canada could negotiate an end to tariffs, he replied “I’m not sure they’ll be totally removed.”
The Budget Lab at Yale calculates that the average effective U.S. tariff rate on all imports is now 17.8 per cent. That is down from where it was at the height of the Trump trade offensive; in mid-April, the average tariff was 28 per cent.
But tariffs have long been at a fraction of that level across the developed world, including in the U.S. The weighted mean tariff on all products imported into Canada in 2022 was 1.37 per cent, according to the World Bank. In Britain, it was 1 per cent.
And Yale says the effective U.S. tariff rate last year was 2.42 per cent.
In other words, even after Mr. Trump’s tariff retreat, American taxes on imports are now more than seven times as high as they were in January. The last time tariffs were this high was 1934.
The Trump trade dance involves big opening steps toward taxing imports, and smaller steps back. U.S. trade policy is very far from where it started the year, and where it has been for decades. The country at the centre of global trade has gone overnight from low to high tariffs, and from stable multilateral agreements to non-binding ad hockery.
Where does that leave the USMCA? And Canada? Stay tuned.