Tariff Negotiations: Sprinting to the Finish Line
By Wendy Cutler and Jane Mellsop
Editor’s introduction: Hi there. In our first issue of Asia Policy Brief, Wendy Cutler, ASPI’s Vice President, and Jane Mellsop, ASPI’s Director of Trade, Investment, and Economic Security, highlight the difficulties Asian trade partners face in trying to meet President Trump’s 90-day deadline, and what to watch after July 8.
State of Affairs: Trump’s Trade Deadline Looms
As the ninety-day deadline for trade talks with the United States approaches, trading partners are intensifying efforts to satisfy U.S. demands in order to avoid the reimposition of reciprocal tariffs on July 9. As a result, we have seen many offers to increase purchases of U.S. goods; accelerate cooperation on energy, shipbuilding, and critical minerals; and reduce market access barriers. However, only one deal has been concluded to date—that with the United Kingdom. Talks with China are on a separate timeline, with an initial deadline of early August for progress.
But as countries flock to Washington to press their case for a deal, the Court of International Trade ruled on May 28 that the International Emergency Economic Powers Act (IEEPA) was not a valid basis for imposing the tariffs and ordered their removal. Partners are closely watching as this case works its way through the U.S. legal system.
In addition, President Trump has used Section 232 of the Trade Expansion Act to impose additional sectoral tariffs on steel, aluminum, autos and auto parts, as well as to launch investigations on lumber, aircraft, pharmaceuticals, trucks, semiconductors, critical minerals, and copper, which are also expected to result in more tariffs.
Why it Matters: Not Your Regular Trade Negotiations
The impact of high tariffs on the U.S. economy cannot be overstated. They will lead to higher prices, product shortages, slowdown in business investment, and reduction in GDP growth, not to mention impacts on the U.S. stock and bond markets.
Our trading partners, particularly in the Indo-Pacific, will likewise feel the pain of high U.S. tariffs. As the largest economy in the world, access to the U.S. market is critical. The U.S. is the top destination for exports from India and Vietnam; and in the automotive sector alone, Japan exported some $55 billion, and Korea $49 billion, to the U.S. in 2024. The global economy is already feeling the fallout from tariffs, with the World Bank and IMF recently lowering global GDP growth forecasts in the range of 0.3% to 0.5%, and APEC slashing its GDP growth forecast for the region by 0.7%.
These trade negotiations differ from past ones in three important ways. First, the timeline is compressed. Trade negotiations usually take many months, if not years. Ninety days is a very short period to reach agreement with just one country, let alone so many different partners at once. Second, these negotiations are largely one-sided—that is, the U.S. is looking for the partner country to make substantial concessions, offering little in return. While this might resolve some immediate concerns about balanced trade, a win-win agreement where the partner also gains benefits that it can sell back home is more likely to be adhered to in the long term.
Third, it is expected that the trade deals will be more akin to framework agreements, setting the terms of future negotiations, with some upfront commitments. This was the case with the UK deal. While these may be lauded by President Trump as breakthroughs, in reality they are expected to be light on substance and enforceability, and set the stage for longer, potentially protracted, negotiations.
The U.S.’ Free Trade Agreement (FTA) partners, in particular, are at a disadvantage. Having already eliminated their tariffs under bilateral agreements, they cannot offer further tariff reductions to appease the current U.S. administration. Furthermore, they are equally faced with the barrage of reciprocal and sectoral tariffs which for the most part run afoul of U.S. FTA commitments. This has resulted in major frustration and disappointment in Seoul, Singapore, and Canberra—the three Asian FTA partners of the U.S.
Varying levels of progress are being made with individual partners, which have been narrowed to 18 priority countries, including many in the Indo-Pacific. Different sticking points are emerging for different partners. For Japan, it’s all about autos; while for Vietnam and other Southeast Asian partners, they are wary of embracing U.S. requests to lessen their economic integration with China for fear of Chinese retaliation.
What to Watch: What Happens After July 8?
As we near the July 8 deadline for the trade talks, key developments to watch include:
Which countries conclude deals by the deadline; and for those that do not and are negotiating in good faith, will there will be an extension? Will certain countries without a deal see the reimposition of high reciprocal rates?
How far will deals go in terms of requirements for partners to restrict their trading relationship with China?
Will tariffs under any of the seven ongoing Section 232 national-security related investigations surface in the coming weeks or months, and how will they impact engagement?
Will any of the U.S.’ FTA partners get special treatment; and in particular, will any country see tariffs below the 10% so-called “baseline”?
How will the legal battles play out and how will they impact the pace and outcome of the talks?
Will the London pact between the U.S. and China continue to hold, or will tensions increase, with spillover effects for other Indo-Pacific countries?
Dive Deeper with ASPI
Wendy Cutler comments to Bloomberg about the implications of U.S. withdrawal from the TPP almost a decade ago.
Read a South China Morning Post interview on “Truth in the Truce: Wendy Cutler Mulls if U.S.-China Trade Can Find Lasting Peace.”
Read Jane Mellsop’s recent analysis on “APEC Trade Ministers’ Meeting: Pulled in Two Directions.”