Burying the hatchet with Brussels, Donald Trump – flanked by the leader of the European Commission – hailed a bold new era of transatlantic relations, an ambitious economic pact, and declared: “This was a very big day for free and fair trade.”
That was seven years ago. And then on Sunday, the US president – flanked by a different leader of the European Commission – hailed another new era of transatlantic relations, another economic pact and declared: “I think it’s the biggest deal ever made.”
Trumpian hyperbole can typically be relied upon as long as he’s in the room, at the lectern or typing into Truth Social. What matters after that is the underlying detail – and we have very little, beyond a handful of big numbers designed to grab headlines.
What we do know, as a result of this deal, is that European exports to the US will face a blanket 15% tariff: a tax expected, at least in part, to be passed along to US consumers. The price of key products shipped from the EU, from cars to medicine and wine, is about to come into sharp focus.
This pact is not unique. Trump’s agreement with Japan also hits Japanese exports to the US with a 15% tariff. Most British exports to the US face a 10% tariff under his deal with the UK.
A string of countries without such accords, including Brazil, Canada and South Korea, are set to face even higher US tariffs from Friday. The Trump administration currently has a blanket 10% levy in place for US imports, although the president threatened to raise this to “somewhere in the 15 to 20% range” earlier this week.
Ignore, for a moment, the chaos and the noise. Put to one side the unpredictable stewardship of the world’s largest economy, and its ties with the world. And forget the many U-turns, pauses and reprieves which have followed bold pronouncements, again and again and again.
If you, like many businesses in the US and across the world, are struggling to keep up, take a step back and look at a single number. Since Trump took office, the average effective US tariff rate on all goods from overseas has soared to its highest level in almost a century: 18.2%, according to the Budget Lab at Yale.
Trump argues this extraordinary jump in tariffs will bring in trillions of dollars to the US federal government. On his watch, tariffs have so far brought in tens of billions of dollars more in revenue this year than at the same point in 2024.
But who picks up the bill? The president and his allies have position this fundamental shift in economic policy as a historic move away from taxing Americans toward taxing the world. But in reality, everyone pays.
Tariffs are typically paid at the border, by the importer of the product affected. If the tariff on that product suddenly goes from 0% to 15%, the importer – as you’d expected – will try to pass it on. Every company at every stage of the supply chain will quite literally try to pass the buck, as much as possible.
And the very end of the chain, economists expect prices will ultimately rise for consumers. The Budget Lab at Yale estimates the short-term impact of Trump’s tariffs so far is a 1.8% rise in US prices: equivalent to an average income loss of $2,400 per US household.
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Big firms that have so far done their best to hold prices steady amid the blizzard of tariff uncertainty are now starting to warn of increases. Inflation, which Trump claims is very low in the US, picked up in June.
The president appeared to reluctantly reckon with the reality that Americans may start to foot the bill for his tariffs before setting off for Scotland late last week.
Asked about the prospect of using revenue from tariffs to distribute “rebate” checks to US consumers, Trump said: “We’re thinking about that, actually … We’re thinking about a rebate, because we have so much money coming in, from tariffs, that a little rebate for people of a certain income level might be very nice.”
Given what inflation did to Joe Biden’s electoral fortunes, and Trump’s keen eye for populist policies, it’s hardly a stretch to imagine those cheques – signed by Donald J Trump – landing in bank accounts in time for the midterm elections next November.
And such a move would, indeed, be very nice. Especially as it appears increasingly likely that, after this week, Americans will probably be paying more for almost everything.
