Lots of signs that the trade negotiations with US allies aren't going especially smoothly (the Japanese signaled through the FT that any deal was unlikely before their elections). This shouldn't be a surprise -- the Trump "offer" isn't particularly appealing
The offer, as I understand it, is that other countries should come forward with concessions to rebalance trade, and in return the US wouldn't raise the "base" tariff (10%) to the "reciprocal" tariff (20% for Europe, 24% for Japan) -- and would keep the 232s (likely at 25%)
So allies are expected: a) not to retaliate for the 10% base quota or the 25% sectoral quotas; and b) make additional concessions simply to avoid even higher tariffs ... they don't view that as a great deal
Significant concessions historically have come in exchange for "reciprocal" concessions from the US - not after a unilateral increase in tariffs on the US side. Trump of course thinks that these concessions are needed to balance trade, and he wants a new paradigm ...
The 232s (all at 25% so far, but chips/ electronics and pharma aren't done yet) are a particular problem -- Trump showed a bit of flexibility (going to 10% for the UK in return for a fairly modest quota) but only a bit, and autos are fairly existential for Japan and Korea ..
the 100K tariff rate quota (10% on the first 100,000 of imports, 25% on subsequent imports) for the UK leaves UK exports well below their pre-COVID (some would say pre-Brexit) leaves --Japan and Korea haven't been willing to accept either 10% or a small quota (understandable, given the size of their sectors) and the Japanese are upset that they aren't getting credit for the agricultural market access they gave Trump in his first term
Given the substantive gaps and Japan's own politics, it doesn't seem that an early July deal is likely ...
The European talks (which at least have now started) also will be difficult -- the Europeans are willing to make some concessions, but for real concessions from the US (zero for zero on industrial tariffs) which isn't the Trump way
The Europeans also have a lot at stake with the 232s -- the auto 232, but also the coming pharma 232. I have emphasized the impact on US pharma that produces in Ireland, but the tariffs also impact real European pharma exports too ...
The deal space isn't obvious -- Trump wants big concessions to avoid going from 10 to 20; the Europeans would note correctly that 10 is already pretty close to 20 if you could all the threatened 232 sectors (and assume a 25% tariff there)
I understand the "TACO" trade; but a part of me wonders if there won't be a lot more drama than is now expected in early July. https://x.com/Brad_Setser/status/1924201694453195119
....a fair trade is not what Trump 2.0 wants, they want it skewed to the US favour to address the imbalance.
....so any negotiation is simply to extract concessions from these countries in exchange for a low tariff which is 10% being the absolute minimum
....so to begin with it is a 'I win you lose' type of negotiation - small countries with no cards have just got to suck it up or Eat the Tariffs, larger trade bloc and countries which may not want to agree would also face stiffer tariffs and the only question is if they are prepared to retaliate in ways hopefully to change Trump's mind.
...the markets got too premature in believing that Trump has backed down. He won't want to lose in this favourite corner of his -tariff is the most beautiful word in the dictionary.
..For Australia, it is better we just stay quiet, as they have a trade surplus with us, rather than trying to curry favour with our own set of gestures (super investment, critical minerals etc).
