White smoke emerged yesterday from the Vatican signaling something that has never happened before—an American pope. But it was a less divine U.S. first on Thursday that was catching the attention of markets—the first trade agreement since President Donald Trump’s tariff announcement.
The market was excited by the U.K.-U.S. trade deal announced Thursday, heeding Trump’s advice to investors to “buy stocks now.” The S&P 500 is back within touching distance of its levels before the April 2 ‘Liberation
Day’ tariff reveal.
On the surface, that’s puzzling. The U.K. deal covers a relatively small amount of trade and didn’t remove the 10% baseline tariff on exports to the U.S. That’s a bad precedent, considering the U.S. has a trade surplus with Britain and might have been expected to offer generous terms.
But it makes more sense if the U.K. deal is largely seen as a sign of willingness to strike agreements ahead of talks between American and Chinese officials this weekend. Multiple reports suggest the U.S. is aiming to
bring mutual levies below 60% as soon as next week. That really would be big news. The average tariff now charged by the U.S. on its global imports is around 23%, according to ING analysts, but duties on Chinese goods make up more than 15 percentage points of that.
A U.S.-China deal could set stocks on the way to regaining their February all-time highs. However, China has maintained a harder public line on negotiations and could be emboldened by data Thursday showing its exports comfortably beat market expectations in April, despite a 21% drop in shipments to the U.S., as it boosted trade elsewhere.
The Vatican’s conclave resulted in an unexpectedly speedy decision in favor of an American. Don’t count on something similar happening this weekend.
—Adam Clark
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After U.K. Trade Deal, Now Comes the Hard Part
The U.K. trade deal is a framework for other negotiations, but don’t expect substantial relief. The U.S. will ease levies on British steel and autos, while a British firm will buy Boeing jets and the U.K. will open its
markets to American farm products. But America’s baseline 10% tariff remains.
- President Donald Trump said the 10% baseline tariff is as low as the U.K. and other countries will see. Trump has called the deal “a full and comprehensive” arrangement with the U.K. that will be the “first of many.” Details will be finalized in the
coming weeks.
- People are hoping for a streak of bilateral agreements that will substantially bring down overall tariff levels before July, when Trump’s so-called “reciprocal” tariffs, which are country-specific on top of the 10% baseline, take effect. There are reasons the U.K. deal was the quickest and easiest to complete.
- The U.K. is only the fifth-biggest buyer of U.S. exports, behind Canada, Mexico, China, and Japan. The European Union, which represents 20 countries including Germany and France, will be negotiating
as a bloc. America ran a trade surplus with Britain in the fourth quarter.
- The deal was seen as good news for the British car, aerospace, and pharmaceutical companies that export a lot to the U.S., such as Rolls-Royce, BAE Systems, and AstraZeneca. It was also a boost to
spirits maker Diageo, the owner of Johnnie Walker whiskey and Tanqueray gin.
What’s Next: The U.K. deal could fuel fears among Chinese officials that Trump keeps renegotiating deals after striking them. Peter Mandelson, British Ambassador to the U.S., noted Trump’s last minute demands in the deal. Trump says adjustments mean the U.S. is flexible or thinks it could do better.
—Joe Light, Reshma
Kapadia, and Brian Swint
Consumer Price Increases From Tariffs Could Come in Waves
President Donald Trump’s tariffs are already increasing prices on consumer goods and more hikes could be ahead. But Paul Donovan, chief economist at UBS Global Wealth Management, said when and how much depends on the
product and the knock-on effects of the tariff regime.
- Trump’s announced levies on trade so far have cumulatively lifted the effective tariff rate to roughly 25% from 2.5% at the start of the year, but are expected to be negotiated down from here. Donovan estimates that a 10% increase in tariffs could raise price
levels by about 1.1%.
- Companies will probably opt for one-time increases to compensate for the hit to their profits, but second order effects, including price-led inflation, could persist at the retail level, he said.
- Some companies have already begun raising
prices. For instance, Ford Motor is increasing prices on several 2025 models, Microsoft is increasing Xbox prices, and Mattel has indicated toy prices will go up.
- The argument goes if consumers believe prices are increasing, then retailers can push through price increases because their customers are expecting it as a concept.
What’s Next: U.S. talks in Geneva this weekend with China could lay the groundwork for a reduction in tariffs. The deal struck
with the U.K. on Thursday potentially provides a blueprint for other countries in their negotiations with the Trump administration, showing what can be achieved from talking and a calm diplomatic approach
—Andrew Welsch and Rupert Steiner
Coinbase Stumbles on Revenue But Optimistic About Crypto Prospects
As Bitcoin climbed back above $100,000 for the first time since February,
crypto exchange operat
