From Liberation Day to Independence Day: a trade update

A look at the evolving international trade landscape

Three months on from the Trump Administration’s “Liberation Day” tariff bazooka, we now sit waiting for July 9, when the Administration’s somewhat humiliating “pause” from the Liberation-Day nonsense comes to an end. Of course, for the Administration, the signing of The One Big Beautiful Bill Act into legislation by President Trump will mark Independence Day 2025 as a major milestone of success (see our Principal Economist Drew Klease’s recent take on the Bill at From tariffs to tax cuts).

But where are we at on the trade negotiations? Thus far, the US has reached agreements with the UK and, more recently, Vietnam. It has also paused hostilities with China.

The Vietnam agreement sees the US imposing a 20% tariff on imports from Vietnam, up from the 10% tariff introduced in the “pause”, but down from the 46% level imposed on Liberation Day. Even though the tariff is double the existing rate, markets reacted positively to the news, suggesting they feared an even higher impost.

The UK agreement sees a base rate of 10%, with variations across a range of imports, including an exemption from the 25% global tariff on automobiles for the first 100k vehicles imported from the UK. Elsewhere, progress is slow.

Of the major economies, Europe is holding out for a 10% tariff and concessions on the 25% global car tariff. The US is threatening a 50% tariff on imports from the EU.

There seems to be little progress with Japan, inducing President Trump to threaten tariffs of “30% to 35%”, higher than the 24% Liberation Day tariff. But the most significant and most fraught agreement will be with China.

Following escalating tit-for-tat tariff hikes between the two superpowers following Liberation Day, a truce-of-sorts was reached in mid-May with a 90 day pause, meaning from the US’ standpoint, an agreement must be reached by mid-August. However, the US effectively telegraphed their intent by imposing a 40% tariff on transhipped goods in their agreement with Vietnam.

This sets a floor for tariffs on China at 40%, because anything less would see manufacturing relocated back to China, in clear contradiction to the US’ objective of diminishing the economic power of the world’s second-largest economy. For the US, negotiations with China have at their heart national security rather than economic advantage as the key driver.

China’s control of the global supply of key critical minerals is its trump card. And it is willing to play it. Not only against the US, but elsewhere as well. Talks between EU leaders and China are stalling.

Europe is concerned with China’s position on the Ukraine/Russia war, but also with trade relations; particularly the threat that cheap Chinese EV imports pose to the EU’s large car manufacturing industry. This led the EU to place tariffs on Chinese EV imports of up to 45% depending on an assessment of the level of government subsidies for each car manufacturer.

In retaliation, China has placed new controls on critical mineral exports to the EU, resulting in an 85% decline in exports of rare earth magnets that are essential inputs into the production of cars and an assortment of high-tech goods. China has justified the restrictions on the grounds of national security, on the basis that rare earth magnets have dual purposes – meaning they are also used as an input into weapons production.

In the US/China trade discussions, a similar “weaponizing” of critical minerals by China is evident. The US retaliated by withholding exports of critical tech inputs (such as US chip-design tools software) to China.

So, what can we infer about the evolution of global trade relations?

1. Uncertainty remains a given as does the prospect for higher tariffs as a permanent feature of the global trade landscape.
2. Among the big 3 (US, EU and China), their economic interdependence means that, for the time being, they cannot afford to isolate themselves from trading with one another.
3. But national security concerns are incentivising the big 3 to push towards greater self-sufficiency and, therefore, towards greater trade isolation and the definitive end of the era of globalisation.