Deconstructing ‘Liberation Day’: Tariffs Remain, Markets Watch

Details surrounding the deal between the U.S. and the United Kingdom suggest that the main 10% U.S. tariff is likely to remain in place for other trading partners with almost no exceptions, but indicate more flexibility than expected regarding sector-specific tariffs. In his statement on Thursday, President Trump also adopted an unusually optimistic tone regarding upcoming negotiations with China – even softening his rhetoric this morning, saying, “80% tariff on China sounds good.” But for the second time this week, he signaled that he may soon propose country-specific customs duties.

Below is an excerpt from the latest note by Goldman Sachs’ Chief Political Economist, Alec Phillips, regarding what he believes are the three key takeaways from the U.S.-UK trade deal:

1. Trump announced a preliminary trade deal with the UK, which retains the main 10% U.S. tariff but reduces sectoral tariffs on cars and steel/aluminum, and appears to lay the foundation for preferential treatment of pharmaceutical tariffs, which the Trump administration is considering. The deal appears to reduce UK tariffs on some U.S. agricultural products (e.g., beef, ethanol), and also exempts UK aerospace parts from U.S. tariffs. Taken together, these changes would reduce the effective U.S. tariff rate by less than 0.1 percentage points.

2. In the announcement statement, Trump took a more conciliatory tone regarding U.S.-China negotiations, saying, “Who called first, who didn’t — doesn’t matter. What matters is what happens in the room, but I’ll tell you, China really wants a deal.” He also expressed optimism: “I think we’re going to have a great weekend with China.” However, this conciliatory tone was sharply muted this morning when Trump said tariffs on China might only fall to 80%, although “everything is in Bessent’s hands.”

3. Despite signs of de-escalation, Trump for the second time this week hinted that he might reintroduce higher tariffs targeted at specific countries. He stated, “There will come a time… when we’ll just do the deal… we won’t need the countries involved because we already have them. And we’ll say: this specific country, which had a big surplus… will pay a 25%, 30%, 50%, or 10% tariff, or whatever it needs to be.” Goldman does not expect the so-called “Liberation Day” tariffs to come into force after the 90-day pause period ends, but it seems increasingly likely that some (if not most) trading partners will soon face a new threat of tariffs targeting specific countries.

Separately, Bloomberg confirms what the NY Post reported yesterday: The Trump administration is considering a drastic reduction of tariffs during weekend talks with China to de-escalate tensions and alleviate the economic pain both sides are already feeling.

According to informed sources, negotiations in Geneva, led by U.S. Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng, aim for an initial reduction in tariffs to below 60%, which China may accept. If progress is made in the two-day negotiations, these reductions could take effect as early as next week.

The report notes that the talks are likely to be exploratory and serve as an expression of complaints, rather than resolving the long list of issues between the countries. The situation remains unstable, with no guarantee of tariff reduction in the short term.

Among the key U.S. objectives are the removal of Chinese export restrictions on rare earths used in manufacturing magnets, as well as progress on the fentanyl issue — separate negotiations are expected to address reducing China’s exports of opioid ingredients.

However, even a drastic reduction from the current 145% tariff on Chinese imports is unlikely to significantly alleviate pressure on American consumers, who face higher prices and empty shelves this summer. This is part of Trump’s strategy, and U.S. officials have clearly stated their desire to reduce tariffs imposed in response to Chinese countermeasures after the announcement of new tariffs on April 2.

“There’s nowhere else to go – we’re already at 145%, so we know they’ll go down,” Trump said on Thursday when announcing the terms of the U.S.-UK deal.

“De-escalation and returning to the levels where they should be is Bessent’s goal. I think the Chinese delegation shares the same goal,” said Commerce Secretary Howard Luttnick on CNBC.

Chinese officials remain cautious about their objectives. On Thursday, Beijing once again urged the Trump administration to lift unilateral tariffs, and Ministry of Commerce spokesman He Yadong stated that the U.S. must “show sincerity and willingness to correct its mistakes.”

According to Son Hong, deputy director of the Institute of Economics at the Chinese Academy of Social Sciences, a joint statement from the weekend may announce that both sides will mutually lower tariffs. He noted that the U.S. must take the initiative, as they started the trade war.

According to Alvin de Groot of Rabobank, the deal between the U.S. and the UK is more of a framework agreement without legal obligations, but with important details – including market access for U.S. beef and ethanol worth $5 billion, a $10 billion order for Boeing aircraft, and the removal of tariffs on steel, aluminum, and parts for military aircraft.

The Telegraph writes that “Starmer gives Trump a ‘veto’ on Chinese investments in the UK.” Critics note that the deal undermines the WTO – which is actually the goal – and lays the foundation for a new world economic order led by the U.S.

According to Goldman, despite the optimism surrounding tariff reductions, markets should be cautious – upcoming deals with countries like Japan could be much more difficult. The deal with the UK was one of the easiest. Future negotiations may be far more tense.