US trade deals multiply but are offering little certainty or durability

A wave of new trade agreements under Trump 2.0 offers concessions to Asian partners, but their executive-order nature leaves room for renegotiation and continued uncertainty

Even as the United States Supreme Court began hearing the case on the validity of the President’s powers to impose tariffs under the International Emergency Economic Powers Act (IEEPA), there has been a flurry of trade announcements by the White House trade team.  Apart from a reversal of reciprocal tariffs on agricultural items ranging from tomatoes and avocados to beef and some fertilisers — announced soon after the Democrats’ victory in key US states and cities in the first major election in Trump 2.0 — negotiations towards several trade deals were also stated to have been concluded.  

Prominent among these are two final trade deals on reciprocal trade with Malaysia and Cambodia and two framework trade deals with Thailand and Vietnam, which were finalised at the end of October by President Trump during his trip to Association of Southeast Asian Nations and East Asia. This has been followed in November with framework agreements with Switzerland and four Latin American countries — Argentina, Ecuador, Guatemala and El Salvador. While two trade and investment agreements with Japan and Korea were announced in July, the details of the US-Korea trade deal were  finalised and released only last week.  Prominent features of the major trade deals may be worthy of note. 

The final trade deals have been concluded after a substantial time lag since the initial announcement of the deal, while framework trade deals remain open for further negotiations. However, both framework and final trade deals have been concluded through executive orders and, unlike free trade agreements (FTA), are not legally binding. Therefore, renegotiation or resetting the constituent provisions remains a potential possibility even for final trade deals. This has, in fact, been evident most recently when the US, not satisfied with the slow implementation progress by the European Union on the trade deal finalised in August, initiated discussions on renegotiating the trade deal.  

So, while the inherent uncertainty cannot be discounted, the trade deals do not necessarily appear to be entirely one-sided, particularly for the export-oriented Southeast and East Asian countries. As is well-known, all trade deals involve a reduction of reciprocal tariffs as announced by the US on April 2 and a corresponding concession by the partner country to import all or a majority of US goods duty-free. However, given that the average applied most-favoured nation (MFN) tariffs are in the range of 5-10 per cent in the Southeast Asian and East Asian economies, the preferential margin granted to the US by these economies may not be really significant.  

Also, across these economies, a substantial range of tariff lines is already in the duty-free category. Malaysia, for example, allows almost 83 per cent (by import value; 65.6 per cent tariff lines) and 65 per cent (by import value; 74.5 per cent tariff lines) in the duty-free category in the manufacturing and agriculture sectors, respectively. Japan, a major export market for the US, has an average applied MFN tariff of only 2.4 per cent in manufactured goods, while even in agriculture, where its average applied MFN tariff stands at around 12 per cent, over 50 per cent import value is in the 0-5 per cent tariff category. The much-highlighted concession granted for import of rice from the US, under the recent deal, remains within the pre-existing duty-free cap for Japan.  

In comparison, the inclusion of the provision on keeping the reduced reciprocal tariff as a tariff cap for goods currently being investigated by the US under Section 232 in trade deals with Korea and Japan is quite partner-country friendly, given their export composition. Korea, for example, has been granted a cap of 15 per cent and hence parity with its revised reciprocal tariffs on some of its major exports to the US currently under Section 232 investigation, such as wood, auto, pharma, and semiconductors. The provision is also significant in view of the likely substitution, however imperfect, of the reciprocal tariffs by tariffs under Section 232 in the case of an adverse Supreme Court decision on the President’s IEEPA powers to impose tariffs. 

Interestingly, Korea has also been able to negotiate competitive parity in the semiconductor sector by pre-empting any tariff disadvantage in a potential trade deal by the US with its main competitor – Taiwan. In return, Korea has committed to eliminate the 50,000-unit import cap for US-originating and safety standards-compliant automobiles. This, however, may not mean much as Korean car imports from the US have been around 30,000 and so well below the erstwhile limit. Similarly, Malaysia has secured tariff exemptions on over 1,700 tariff lines covering some of its major exports to the US.    

In the case of Vietnam, the provision of imposing a higher 40 per cent tariff on transshipments to the US may have had a significant impact on its exports. However, the situation remains fluid in the absence of a clear specification of rules of origin by the US in this context.  As for Cambodia, its expanded market access for the US is irrelevant, given its paltry $200 million imports. Importantly, its commitments on compliance with global environment and social governance norms, particularly those related to labour conditions, included ostensibly to prevent rerouting of Chinese goods, are rendered ineffective as the trade deal remains wanting on the specification of an appropriate enforcement mechanism.  

There has been much commentary on the investment commitments by Japan and Korea.  Korea has signed a memorandum of understanding (MoU) on investment commitments with the US. The MoU includes clearly specified annual capital outflow and timeline of total investment. Notably, though, there are also some carve-outs in the investment provisions. There is scope for reconsideration of both the amount and timing of the outflow under certain conditions, such as economic emergencies, in the MoU. However, the absence of selection criteria for investment projects implies continued uncertainty and a potential return to the negotiating table.   

The investment deal with Japan appears far less fleshed out. Unlike the Korean case, where a joint factsheet with details of the trade deals has been issued, in the case of Japan, separate factsheets have been released by the US and Japan. A more cautious Japanese interpretation of the likely increase in US state influence on business decisions and partaking of profits in the joint investment projects may lead to its undoing in the longer term. 

So, even while much negotiating capital is being expended by several nations in extracting a not-so- imbalanced trade deal with the US, the inherent scope for renegotiation and reset in these bilateral trade deals prevents any semblance of stability in trade relations with the US.

The author is professor, School of International Studies, JNU. Her book India’s Trade Policy in the 21st Century, was published by Routledge, London, in 2022. The views are personal