Trade Deals - What They Mean for Business
Over the weekend President Trump and his team were able to finalize a high stakes trade deal with the EU and its member states. The EU will agree to a 15% baseline tariff moving forward, this will mean most goods being imported from the region will be subject to this duty upon entry into the United States.
While most consumer goods are included in this baseline charge, steel will remain at close to a 50% tariff mark. This agreement comes on the heels of other tariff arrangements recently closed with major US trading partners Japan, Vietnam, the UK and the Philippines each acquiescing to their own tariff rates of 15%, 20%, 10% and 19% respectively.
The latest agreement with the EU is indeed a welcome one for economists and financial institutions in both continents. With 27 countries comprising The Union, this is the most broad and sweeping agreement during the “Trade War” President Trump had begun back in April. The new deal, while it moves the baseline tariff rate up from the 10% Trump imposed earlier to 15%, it does lower the auto tariffs he had originally set at 25%.
The new rate closely matches what the EU has had in place on the import of US goods into the Eurozone for over the past 25+ years, excluding the high VAT taxes on American-made products sold in Europe.
European officials said the 15% baseline tariff would keep most levies at a similar level to what they are currently because they wouldn’t be cumulative with duties that existed before Trump’s return to office earlier this year. The EU says it is already facing an effective tariff rate that is close to 15% because Trump’s 10% baseline tariff was stacked on top of the U.S.’s pre-existing tariffs.
The new agreements bring a welcomed stability to the financial markets which have rebounded to all-time highs since the “liberation day” back in Q1. With these deals inked, manufacturers and distributors can now accurately estimate costs, adjust production, pricing and business metrics to meet goals for the rest of the year and beyond. Stable costs equal stable forecasting, which leads to more accurate returns, a welcome environment for investors.
How will the consumer be affected? Looking at the CPI (Consumer Price Index) with the original baseline tariffs which The Trump Administration had implemented, the data has seen an increase of 0.3% to overall cost on goods and services for the month of June. With the new agreements in place will we see another subtle rise for the additional tariff? Studies indicate another rise in prices will be minimal, with the price to consumer mostly priced in from the original baseline tariffs, lower inflation readings and an ability for retailers to now operate on more predictable supply chains point to a pricing stability in the near to longer-term future.
As a small business owner this should be welcome news, predictability of costs and lower volatility with the addition of a stable consumer environment can allow for you to forecast more stable revenue streams, invest with confidence in marketing, development, materials and other factors to boost growth.
To gain personalized guidance for your business on this topic and others contact us.
- Vince Calace
Founder - Venture Business Development