Reciprocal Tariff Week: What to Watch Ahead of the July 9th Tariff Deadline
The Big Picture: Some frameworks that avoid tariffs above the 10% level will likely be announced this week, but most countries will get letters extending the tariff deadline to Aug 1st when tariffs on imports to the United States will take effect. This process has changed again and again, supporting the notion that uncertainty for businesses and economies will continue no matter what happens this week.
Why extend the enforcement deadline? The plan was to impose the higher tariff on July 9th if no deal was announced by July 8th. The Administration is now saying it is pushing the enforcement date from July 9th to August 1st. I think this means they wanted to announce more deals, so extending the enforcement deadline gives more time to reach deals.
What countries are likely to get deals this week? Hard to predict since the Admin has not publicly stated its country goals but I would say smaller countries, allies, and SE Asian countries anxious not to be the last one in the region to get a deal are more likely (i.e., Thailand, Indonesia, Malaysia, Liechtenstein, Lesotho, Guyana, Fiji, Switzterland, Taiwan, Israel, Argentina).
What about the bigger economies? The EU, Korea, Japan, and India, will continue to drive a hard bargain while offering ways to reduce the trade deficit in the hopes of either getting an initial framework or a hybrid of a temporary tariff increase coupled with agreement on a smaller set of issues and a commitment to keep working on outstanding issues.
What are the frameworks going to look like? The common themes so far are: partner country commits to purchase US goods to reduce the trade deficit, at least a 10% tariff on imports to the US, country-specific reduction in tariffs US exports and non-tariff barriers, something to counter China's trade practices, weakening tech regulations, and commitments to collaborate on shared priorities (e.g., critical minerals trade). I expect this to be the general formula.
One lingering issue: how will these deals be enforced? Trade agreements historically include a specific mechanism to hold partners accountable to their commitments. Outside of an implied threat to impose tariffs, enforcement mechanisms have not entered the equation, raising the question: how durable and long-lasting will these deals be?
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