The framework for potential U.S. trade deals is starting to shape up.
What happened: The U.S. and Japan agreed to a trade deal that sticks Japan with a base 15% “reciprocal” tariff on most imports. Japan was facing a 25% tariff if it didn’t reach a deal by the August 1 deadline and, even more importantly, it now dodges the 25% auto tariff.
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Japan did make concessions to nab this relatively friendly deal, including promising to let in more U.S. rice and earmarking up to US$550 billion to support Japanese investments in fields critical to U.S. national security.
Why it matters: Japan appears to have set the precedent for what trade deals will look like for top U.S. trade partners. Per Financial Times, the EU is nearing a deal that would also lock in a 15% tariff on most goods, avoiding a potentially devastating 30% tariff.
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A flat 15% tariff rate is far from the worst case scenario for the global economy, with Jeffries economist Mohit Kumar telling Reuters that "while [it’s] negative from a macro point of view, the world can live with 15% or so tariffs.”
In Canada: The federal government is still in talks with the U.S. to get a deal done before August 1. PM Mark Carney told premiers earlier this week that he would only accept a deal that is “in the best interest of Canadians” — we’ll see if that deal includes a 15% tariff.—QH