OPINION:
Treasury Secretary Bessent has emerged as the principal architect of the Trump 2.0 economy and the reengineer of U.S. trade. The British trade deal illustrates some glaring weaknesses.
During the first Trump and the Biden presidencies, U.S. economic growth, even with the painful COVID-19 recession, averaged 2.5%, above the 2% pace most economists believe is sustainable.
President Trump’s 2018 Tax Cuts and Jobs Act and President Biden’s infrastructure and industrial policies boosted the federal deficit from 3.1% of gross domestic product in 2016 to 6.4% in 2024. This pushed the unemployment rate to below 4% the year before COVID-19 and for two years after the economy reopened.
Over the final 18 months of Mr. Biden’s tenure, the economy added 169,000 jobs monthly, even though population growth and immigration through regular channels could support about 80,000, by absorbing illegal immigrants into the workforce.
Mr. Trump promises to cut off that supply of workers, and Mr. Bessent must craft a strategy that does not balloon the federal deficit too much further, rebalances growth to better serve the Trump constituency in middle America and contains inflation.
The era of hyper-globalization has created terrible imbalances of economic opportunity. Young people have the best prospects in finance and technology on the two coasts, while manufacturing and working-class Americans languish, often at the mercy of unfairly subsidized and promoted Chinese exports.
Mr. Bessent wants to rebalance opportunities with tariffs that leverage new trade agreements, reshore factory jobs and create better market access for U.S. exports.
These arrangements will be supplemented with an extension of the Tax Cuts and Jobs Act and additional benefits for working folks, such as ending taxes on tip and overtime incomes, and deregulation, especially in the energy sector.
The 10% supplemental tariffs under the 90-day suspension of the Trump “Liberation Day” reciprocal tariffs and additional duties on steel, aluminum, automobiles and trade with China, Canada and Mexico should raise the average duty collected by about 12 percentage points, or 1.3% of GDP. That’s a significant tax on growth and is inflationary.
Uncertainty about tariffs abounds because of the complex trade deals Mr. Trump’s negotiators aspire to accomplish. Fixing nontariff barriers imposed by safety and health standards, government procurement regulations and the like, and subsidies can take years to negotiate.
That freezes business spending decisions and makes ordinary consumers fearful of new surges in inflation and unemployment.
Additional tax cuts could mitigate some of this, but wheels turn slowly in Congress.
The brake imposed by tariffs is arriving now, but the stimulus promised by another round of tax relief won’t happen until later this year or next.
Deregulation is moving along, and gasoline retail prices have come down.
In April, the average price was $3.23 a gallon versus $3.73 a year earlier, but getting it much lower would be tough. Crude oil is a bit more than $60 a barrel, and below that level, too much shale production becomes unprofitable.
The Trump trade team is under pressure to develop new trade deals as the additional tariffs on China, Canada and Mexico, as well as steel, aluminum, and automobiles and parts, will reaccelerate inflation and create shortages. Disrupted supply chains will instigate layoffs in manufacturing and service activities — stagflation.
The trade deal with Britain has been criticized as low-hanging fruit. However, it may prove to be the template for other bilateral deals as it demonstrates the limits of foreign governments’ willingness to yield to tariff bullying.
Trump negotiators were able to leverage relief from the 25% additional tariffs on steel, aluminum and automobiles for better market access on some agricultural and commercial aviation products. Still, major irritants such as the British digital services tax and restrictions on U.S. chicken exports remain unaddressed.
The 10% across-the-board tariff boost remains in place.
British Prime Minister Keir Starmer needed a deal as much as Mr. Trump did because his government is struggling to rekindle British growth and America is Britain’s largest export market.
The European Union and Japan have just as much to lose in a fracturing of trade relations with the United States — likely more given their bilateral trade surpluses — but they have the option of cultivating fast-growing Asian markets.
The 145% duty on Chinese goods, even if permanently lowered to about 40%, will significantly curtail U.S. purchases. However, China’s global exports grew by 8.1% in April, even as sales to the United States fell by 21%. Its factories found expanded markets in South Asia, Africa, Latin America and Europe.
That’s the rub. If America behaves too much the bully, like China, our friends will be transactional and make some kind of deal to avoid the worst of the tariffs Mr. Trump has imposed or threatens to impose and do more business with China.
Mr. Bessent is seeking provisions in bilateral trade deals with major partners’ commitments to help contain China.
Noticeably absent from the British deal is that type of cooperation.
• Peter Morici is an economist, an emeritus business professor at the University of Maryland and a national columnist.
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