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CED’s Policy Backgrounders provide timely insights on prominent business and economic policy issues facing the nation.
As the US adopts a more assertive trade posture—leveraging tariffs and time-bound pressure—negotiations with key trading partners have entered a period of rapid movement and recalibration. The variety of challenges in each trading relationship highlights the Administration’s evolving approach, pressures on other countries to make a deal, and implications for economic cooperation and the future of US leadership in global trade; this Backgrounder highlights key issues in some important bilateral tariff negotiations. While these agreements do not amount to comprehensive liberalization or major structural reform, they reflect an effort to stabilize key bilateral relationships and reduce economic uncertainty and constitute frameworks for continued negotiation toward a final agreement. In this light, the deals’ modest scope, including some managed tariffs on industrial goods or sector-specific exemptions, may provide examples for negotiations with other trading partners. The agreement, announced in late June, lowers US tariffs on imports of autos and aerospace equipment, with tariffs on steel and aluminum goods potentially being reduced, pending UK actions securing its steel supply chain. A more detailed analysis from The Conference Board may be found here. The President announced a deal with Vietnam on July 2 that imposes a 20% tariff on all imports, lower than the original 46%. The announcement also indicated that Vietnam’s government agreed to a 40% tariff on goods originating elsewhere and transshipped through Vietnam. US officials are concerned about the possibility of circumvention of tariffs on goods coming from China, particularly of goods passing through economies in Southeast Asia. A draft joint statement outlining the deal reportedly indicated that Vietnam would offer “preferential market access” for US agricultural products and agreed to purchase Boeing aircraft. Negotiations on “Liberation Day” tariffs The President’s recent announcement that the “Liberation Day” tariffs, originally suspended until July 9, would be reimposed on August 1 when countries would “start to pay” has refocused attention on bilateral trade negotiations that in some cases have stalled over complex and difficult issues. Some observers anticipated that negotiations would continue throughout the summer; Treasury Secretary Scott Bessent earlier suggested that "I think we could have trade wrapped up by Labor Day." However, the President's decision to announce an August 1 deadline reflects a deliberate effort to increase pressure to reach agreements more swiftly. On July 7, the President began sending out letters (21 by midday July 9) outlining tariff rates countries would face if they failed to reach an agreement with the Administration by August 1. The letters also threaten to impose retaliatory tariffs should foreign countries impose new tariffs in response to the US tariffs. The move puts significantly more pressure on countries to conclude deals in short order, seeking to give the US an advantage. It is unclear from the new letters whether the Administration updated its original calculations for the tariff rates, which were designed to “drive [US] bilateral trade deficits to zero,” or what was the formal basis for changing a few of the rates, such as Japan’s (up 1%) or the Philippines (up 3% to 20%). The President’s recent announcement that the “Liberation Day” tariffs, originally suspended until July 9, would be reimposed on August 1 when countries would “start to pay” has refocused attention on bilateral trade negotiations that in some cases have stalled over complex and difficult issues. Some observers anticipated that negotiations would continue throughout the summer; Treasury Secretary Scott Bessent earlier suggested that "I think we could have trade wrapped up by Labor Day." However, the President's decision to announce an August 1 deadline reflects a deliberate effort to increase pressure to reach agreements more swiftly. On July 7, the President began sending out letters (21 by midday July 9) outlining tariff rates countries would face if they failed to reach an agreement with the Administration by August 1. The letters also threaten to impose retaliatory tariffs should foreign countries impose new tariffs in response to the US tariffs. The move puts significantly more pressure on countries to conclude deals in short order, seeking to give the US an advantage. It is unclear from the new letters whether the Administration updated its original calculations for the tariff rates, which were designed to “drive [US] bilateral trade deficits to zero,” or what was the formal basis for changing a few of the rates, such as Japan’s (up 1%) or the Philippines (up 3% to 20%). Another factor is the case currently pending at the Federal Circuit on appeal from a decision of the Court of International Trade against the “Liberation Day” and fentanyl-related tariffs (on Canada, Mexico, and China) as beyond the scope of the President’s powers under the International Emergency Economic Powers Act. The full Federal Circuit will hear the case on July 31, just one day before the tariffs are supposed to be imposed and will thus hear the case knowing the threat that the tariffs at issue could be imposed the very next day. At a minimum, this presents countries with a difficult choice: make concessions now in the hope of reaching an agreement and implement those concessions even if the court (and the Supreme Court) ultimately rule against the tariffs or wait for the courts’ decisions in the hope that the courts will invalidate the tariffs. Even then, however, countries would still have to contend with the likelihood that the Administration would impose tariffs on certain sectors such as electronics pharmaceuticals, and critical minerals, using national security authorities under Section 232 of the Trade Expansion Act of 1962. This Backgrounder highlights key issues in some important bilateral trade negotiations. Shortly after the April “Liberation Day” tariffs were announced, Brazilian officials articulated a desire to negotiate and avoid the 10% universal tariff in addition to existing duties on steel and aluminum and on auto parts. The US has reportedly voiced concern over Brazil’s expanding trade with China. During negotiations, US officials have particularly worried about Brazil’s sharp rise in Chinese steel imports, arguing this displaces Chinese steel to markets including the US, distorts global trade, and amplifies China’s economic influence in the region. Since April, public details of any trade negotiations between the parties have been limited. After the most recent BRICS Summit in Rio de Janeiro, the President announced without further details that the US will levy an additional 10% tariff against any country “aligning themselves with the Anti-American policies of BRICS.” The President renewed the threat on July 8, stating that “[i]f they’re a member of BRICS, they are going to have to pay a 10% tariff, just for that one thing -- and they won’t be a member long.” If applied, the tariff (or perhaps additional tariff, implying a 20% base rate) would apply to Brazil, China, Egypt, Ethiopia, India, Indonesia, South Africa, the UAE, and to whatever trade takes place with the sanctioned countries of Russia and Iran. This could easily complicate negotiations, in particular with China, India, and Indonesia. Canada was not subject to the “Liberation Day” tariffs; tariffs were imposed with respect to the national emergency on fentanyl and sectoral tariffs on steel, aluminum, and autos (extremely important for Canada). In February, the President invoked emergency powers under IEEPA to impose a 25% tariff on imports from Canada not covered by USMCA, framing the move as necessary to disrupt transnational supply chains fueling the fentanyl crisis. While Canadian officials have expressed concern over the use of trade tools for security issues, bilateral talks have continued, with Ottawa signaling openness to enhanced joint enforcement measures. Canada’s Digital Services Tax (DST), in force since June 2024, effectively levies a 3% tax on certain revenues of large digital services platforms including online advertisers and social media companies. Impacted companies argue this discriminates against US entities and stifles growth in the digital economy. After a US threat to end all trade negotiations with Canada, on June 30, Canada announced it would rescind the DST in anticipation of negotiations with the US on a potential deal by July 21. Canadian steel and aluminum imports continue to face a 50% tariff, 25% from IEEPA authorities (considered not covered under USMCA) and the other 25% arising from Section 232 authorities. In response, Canada announced it is limiting the amount of foreign steel and aluminum allowed in the country and considering other measures. In response to a 25% tariff on autos going into the US, Canada responded with a 25% retaliatory tariff on non-USMCA compliant autos and parts. The supply chain for this industry across North America is well integrated and will remain a key focus for ongoing negotiations and USMCA review in 2026. As of July 7, the EU is reportedly on track for what EU Commission President von der Leyen termed a “[potential] agreement-in-principle,” working in “good faith” with the US to avoid the 20% “reciprocal” tariff and even higher tariffs the President threatened as talks stalled. The initial framework reportedly includes the 10% universal tariff on many goods with exceptions for key sectors including alcohol, pharmaceuticals, semiconductors, and commercial aircraft. Additionally, the EU is also seeking quotas and exemptions to the existing 25% tariffs on autos and 50% tariff on steel and aluminum. The US is reportedly seeking an exemption from the EU’s carbon tax for US steel. Still, the President said that while the EU was now “treating us very nicely,” the bloc could still receive a tariff letter, perhaps by the weekend, if there is no deal. Since 2023, the European Union’s Digital Markets Act (DMA) regulates large online platforms by requiring them to open up their systems to competitors and limit self-preferencing. It imposes strict operational rules in areas including app stores, search, advertising, and data use. For US tech companies, the DMA represents both a compliance challenge and a potential rebalancing of digital competition in Europe. Similarly, since 2022, the EU’s Digital Services Act (DSA) has imposed regulations with the goal of enhancing transparency, accountability, and user safety. It imposes obligations on major platforms to manage systemic risks, disclose algorithmic practices, and remove illegal content, with potential fines for non-compliance. The Administration targeted both the DSA and DMA through a February Executive Order, which also includes a renewal of Section 301 investigations. US trade negotiators have reportedly raised these issues in bilateral discussions, seeking carve-outs, regulatory reciprocity, or broader commitments on treatment of US firms. Issues concerning the digital economy will likely factor into broader negotiations, even if not covered in a limited deal. India has a $46 billion trade surplus with the US and received a 26% “Liberation Day” tariff. During his visit to India in April, Vice President Vance reiterated the Administration’s shared desire with India to double the countries’ bilateral trade to $500 billion by the end of the decade. In his remarks, he also stated that the two parties had “officially finalized the terms of reference” for trade negotiations and reiterated the Administration’s desire to sell greater defense supplies and capitalize on the new defense arrangements announced earlier this year. In agriculture, the US is reportedly seeking access to India’s market to sell genetically modified farm products. While corn and soybeans, two major US exports, are excluded from a potential deal, a carve out for genetically-modified animal feed has been reportedly discussed. Beyond GMOs, the US is reportedly seeking lower tariffs and greater market access on dairy, apples, rice, wheat, and a variety of other goods. The agricultural sector is one of the most politically sensitive in India, with millions depending on it as part of their livelihood and industry leaders warning to the US amidst ongoing negotiations. India reportedly is also considering higher purchases of US liquefied natural gas. Indonesia would receive the same 32% tariff rate as in April. Indonesia has been actively negotiating and reportedly proposed purchasing $34 billion worth of US goods, including significant purchases in energy and aircraft as well as increased Indonesian investment in the US. Additionally, Indonesia is offering lower tariffs on key American exports and inviting US investment in its critical minerals sector, including copper and nickel. Japan’s proposed tariff rate of 25% is higher than the 24% announced in April. The decision provoked strong criticism, with Prime Minister Ishiba describing it as “deeply regrettable.” Despite eight rounds of negotiations, the parties have been at a prolonged impasse, with autos and agriculture as major issues. Japan currently faces a 25% tariff on autos and auto parts, a result of a 2019 Section 232 investigation into the sector. Japan removed tariffs on imported autos in 1978 and has urged the US to end these tariffs in a vital sector for its economy. Japan also maintains barriers to protect its highly politically sensitive agricultural sector and likely does not wish to make concessions before the House of Councillors (Japan’s Upper House) election on July 20. Equally, the US is pushing for concessions, particularly on rice given the rise in rice prices in Japan, even though the 2020 US-Japan Trade Agreement excluded new market access for US rice. Beyond its annual quota of 770,000 metric tons of tariff-free rice, Japan imposes a $2.30 per kilogram tariff. Japan’s trade minister responded reiterating that the country would seek to continue protecting its domestic agricultural sector. Still, the US exports $16.8 billion in agricultural products to Japan, led by meat and corn, and is Japan’s largest foreign supplier of food. The President imposed a 25% tariff in February on goods not covered by USMCA from Mexico citing the national emergency on fentanyl under IEEPA (a subject of the litigation now in the Federal Circuit). The President has sought greater cooperation with Mexico on illegal immigration and fentanyl; Mexican officials also share this priority and seeks a broader trade agreement with the US that would likely also cover security and migration. Auto imports not meeting USMCA rules of origin face a 25% tariff. Mexico is one of the largest sources of steel and aluminum imports, subject to a 50% tariff. In June, reports suggested that Mexico is working towards a quota arrangement for imports to enter duty-free or at a lower rate. In agriculture, the Commerce Department announced its intent to terminate a 2019 agreement and subsequently impose a 21% antidumping duty on tomatoes from Mexico in July. The potential impact on US costs given the large volume of imports may factor into broader negotiations. South Korea, which has a free trade agreement with the US, received a 25% “Liberation Day” tariff, which remains the same. The newly-inaugurated government views the extension as a relief. Autos, steel and aluminum, and manufacturing coordination are important parts of the negotiations. South Korean Trade Minister Yeo Han-koo told reporters on July 5 that the two sides are intensifying discussions on economics and security in an “all-court press” effort. The new government has pledged to tackle alleged corporate concentration in the tech sector, actively considering a new regulation partially modeled after Europe’s DMA to limit what it considers unfair business practices. US Congressional leadership has requested that the Administration use negotiations to address proposed regulations in this area. US agricultural exporters continued to criticize the current FTA’s provisions. Restrictions to Korea’s beef market are reportedly a focus of negotiations; tariffs on beef are already set to reach zero in 2026. The President has also linked South Korean defense spending to the tariff issue, saying “South Korea is making a lot of money [but] they should be paying for their own military. The President raised a similar issue at the beginning of negotiations with Japan, but this was apparently put on hold given that the Japan had already agreed a cost-sharing deal until 2027. Taiwan faced a 32% “Liberation Day” tariff. Recent remarks by Vice President Hsiao Bi-khim acknowledged that Taiwan is eager to resume talks on a broader agreement. At the conclusion of the most recent round in late June, Taiwan’s Executive Yuan announced progress on enhancing supply chain resilience and promoting mutual opportunities for industrial development. The President has specifically targeted Taiwan’s semiconductor manufacturing, seeking to get major Taiwanese companies to invest additional funds in US manufacturing. More broadly, Taiwan hopes for further work on the U.S.–Taiwan Initiative on 21st-Century Trade that yielded a limited first-phase agreement in late 2024, but there has been little indication of continued US engagement. Key areas for discussion likely include agriculture, digital trade, labor standards, and state-owned enterprises. Thailand received a 36% “Liberation Day” tariff. In response to the letter, Thailand submitted a revised proposal on July 7 offering zero tariffs on many US goods and pledging to increase imports, including 1 million metric tons per year of US LNG starting in 2026, and corn, in an effort to rebalance bilateral trade over the next decade. In June, USDA announced that Thailand opened markets for US apples from four new states and also amended the import requirements for citrus fruits from Arizona, for an estimated $5.39 million in new market access annually. The key issues in the U.S. trading relationship with countries where the President has decried large bilateral trade deficits reflect both longstanding disputes and the administration’s evolving priorities. While some of these disputes have roots in years- or decades-old grievances, many catalogued in the annual National Trade Estimate Report on Foreign Trade Barriers, the current policy emphasis lies elsewhere. Rather than focusing on compiling a list of barriers, the Administration has made clear that its goal is to eliminate them selectively and leverage negotiations to compel higher purchases of US goods, particularly in sectors including energy, agriculture, and strategic manufacturing, aimed at transactional outcomes designed to deliver immediate reductions in US trade imbalances. Given the demands regarding domestically important sectors and the uncertain nature of the litigation as well as the simple pressure of time, countries have a complex decision ahead of them. Most may make offers; some will likely do so unhappily. Meanwhile, the threat of other tariffs, including potentially forthcoming tariffs on copper at 59%, and pharmaceuticals at up to 200%, persists, adding an additional dimension to countries’ deliberations and raising questions as to the ultimate value of making significant concessions at this time.
Trusted Insights for What’s Ahead®
New Agreements
United Kingdom
Vietnam
Negotiations on “Liberation Day” Tariffs
Brazil
Canada
European Union
India
Indonesia
Japan
Mexico
South Korea
Taiwan
Thailand
Looking Ahead: Deal or No Deal?
