Trump is getting the world economy he wants — but the risk to growth could spoil his victory lap

WASHINGTON AP President Donald Trump is getting his way with the world financial market Trading partners from the European Union to Japan to Vietnam appear to be acceding to the president s demands to accept higher costs in the form of high tariffs for the privilege of selling their wares to the United States For Trump the agreements driven by a mix of threats and cajoling are a fulfillment of a decades-long belief in protectionism and a massive gamble that it will pay off politically and economically with American consumers On Sunday the United States and the -member state European Union declared that they had reached a exchange framework agreement The EU agreed to accept U S tariffs on the greater part its goods easing fears of a catastrophic trans-Atlantic transaction war There were also commitments by the EU to buy billion in U S power products and make billion in new investments through according to the White House We just signed a very big deal deal the biggest of them all Trump revealed Monday But there s no guarantee that Trump s radical overhaul of U S contract guidelines will deliver the happy ending he s promised The framework agreement was exceedingly spare on details Greater part transaction deals require months and even years of painstaking negotiation that rise and fall on granular details High-stakes negotiations break Trump s way Financial markets at first panicked by the president s protectionist agenda seem to have acquiesced to a world in which U S import taxes tariffs are at the highest rates they ve been in roughly years Several billion in new revenues from his levies on foreign goods are pouring into the U S Treasury and could somewhat offset the massive tax cuts he signed into law on July Outside economists say that high tariffs are still likely to raise prices for American consumers dampen the Federal Reserve s ability to lower interest rates and make the U S economic system less efficient over time Democrats say the middle class and poor will ultimately pay for the tariffs It s pretty striking that it s seen as a sigh of relief moment noted Daniel Hornung a former Biden White House economic official who now holds fellowships at Housing Finance Plan Center and the Massachusetts Institute of Device But if the new baseline across all trading partners is that is a meaningful drag on expansion that increases recession risks while simultaneously making it harder for the Fed to cut The EU agreement came just four days after Japan also agreed to U S tariffs and to invest in the United States Earlier the United States reached deals that raised tariffs on imports from Vietnam Indonesia the Philippines and the United Kingdom considerably from where they d been before Trump returned to the White House More one-sided commerce deals are likely as countries try to beat a Friday deadline after which Trump will impose even higher tariffs on countries that refuse to make concessions Trump s long-held theory now faces reality The U S president has long claimed that America erred by not taking advantage of its clout as the world s biggest economic activity and erecting a wall of tariffs in effect making other countries ante up for access to America s massive consumer arena To his closest aides Trump s use of tariffs has validated their trust in his skills as a negotiator and their belief that the economists who warned of downturns and inflation were wrong Stocks rose slightly on Monday morning on tariffs that once seemed unthinkably risky Where are the experts now Commerce Secretary Howard Lutnick posted on X But the story is not over For one thing multiple of the details of Trump s bargain deals remain somewhat hazy and have not been captured in writing The U S and Japan for instance have offered differing descriptions of Japan s agreement to invest billion in the United States The pact deals do seem to count as a qualified win for Trump with other countries giving the U S favorable bargain terms while accepting U S tariffs commented Eswar Prasad a Cornell University economist However certain terms of the deals such as other countries investments in the U S seem more promising in the abstract than they might prove in reality over time Trump is also facing a court challenge from states and businesses arguing that the president overstepped his authority by declaring national emergencies to justify the tariffs on most of of the world s economies In May a federal court struck down those tariffs And an appeals court which agreed to let the regime continue collecting the tariffs for now will hear oral arguments in the scenario Thursday And he s yet to reach an accord with China which has deftly used the threat of retaliatory tariffs and withholding exports of rare earth minerals that are desperately needed for electric vehicles computer chips and wind turbines to avoid caving in to Trump s demands The U S and China are talking this week in Stockholm Sweden Economists remain skeptical of the impacts for US consumers There is also skepticism that tariffs will produce the economic boom claimed by Trump Analysts at Morgan Stanley commented the majority of likely outcome is slow rise and firm inflation but not a recession After all the tariffs on the EU and Japan are a slight increase from the rate that Trump began charging in April during a negotiation period While autos made in the EU and Japan will no longer face the tariffs Trump had imposed they will still face a tax that has yet to appear in prices at U S dealerships The administration has disclosed the lack of auto price increases suggests that foreign producers are absorbing the costs but it might ultimately just reflect the buildup of auto inventories to front-run the import taxes Dealers built stocks ahead of tariff implementation damping the immediate impact on retail prices That cushion is starting to wear thin Morgan Stanley disclosed in a separate note Our Japan auto analyst notes that as pre-tariff inventory clears replacement vehicles will likely carry higher price tags Economist Mary Lovely of the Peterson Institute for International Economics warned of a slow-burn efficiency loss as U S companies scramble to adjust to Trump s new world For decades American companies have mostly paid the same tariffs and often none at all on imported machinery and raw materials from all over the world Now as a product of Trump s commerce deals tariffs vary by country U S firms have to change their designs and get inputs from different places based on these variable tariff rates she explained It s an incredible administrative burden There s all these things that are acting as longer-term drags on financial system but their effect will show up only slowly Mark Zandi chief economist at Moody s Analytics noted that the United States effective tariff rate has risen to from around at the start of the year I wouldn t take a mastery lap Zandi revealed The economic damage caused by the higher tariffs will mount in the coming months Source