Treasury Secretary Bessent has emerged as the principal strategist for President Trump’s economic policy, and the UK trade agreement likely shows the limits of what can be accomplished with tariffs.

During the first Trump and Biden presidencies, annual GDP growth averaged 2.5%—impressive considering the 2% pace most economists believe is sustainable.

President Trump’s 2018 Tax Cut and Jobs Act (TCJA) and President Biden’s infrastructure and industrial policies delivered a massive Keynesian stimulus by raising federal deficit from 3.1% of GDP in 2016 to 6.4% in 2024. Unemployment fell below 4% the year prior to COVID and for two years after the economy reopened.

Over the last 18 months of Biden’s tenure, the economy added 169,000 jobs a month, even though population growth and legal immigration could only support about 80,000. Illegal immigrants finding work made up the difference.

Trump promises to eliminate that supply of additional workers, and Bessent is challenged to craft a strategy that does not too much further balloon the federal deficit, rebalances growth to better benefit Trump’s constituency in Middle America and contain inflation.

The era of hyper-globalization has created terrible imbalances of economic opportunity with young people enjoying the best prospects on the two coasts in finance and technology, while manufacturing and working-class Americans languished—often at the mercy of unfairly subsidized Chinese exports.

Bessent wants to rebalance opportunities with tariffs that leverage new trade agreements, reshore factory jobs and create better market access for U.S. exports.

These new arrangements will be supplemented by extension of the TCJA and new benefits for working folks such as deductions for tip and overtime incomes and deregulation—especially in the energy sector.

The 10% supplemental tariffs under the 90 day suspension of the Trump’s Liberation Day reciprocal tariffs and new duties on steel, aluminum and automobiles and trade with China, Canada and Mexico could raise the average tariff collected by about 11 percentage points or 1% of GDP. Those tax growth and will accelerate inflation.

Uncertainty about future tariffs abounds, because the complex trade deals Trump’s negotiators aspire to accomplish—fixing nontariff barriers imposed by safety and health standards, government procurement regulations and the like and subsidies—can take years to negotiate.

Businesses are trimming spending and ordinary consumers are more fearful about the future.

Additional tax cuts could mitigate some of this. However, the problems imposed by tariffs are arriving now, but another round of tax relief won’t happen until later this year or next.

Deregulation is moving along.

In April, the average price of gasoline was $3.23 a gallon vs. $3.73 a year earlier, but it’ll be tough to get it much lower. Crude oil is a bit more than $60 a barrel and below that threshold, too much shale production becomes unprofitable.

The Trump trade team is under pressure to come up with new trade deals as the additional tariffs on China, Canada and Mexico, steel, aluminum and automobiles and parts will reaccelerate inflation and create shortages. Disrupted supply chains will instigate layoffs in manufacturing and service activities—stagflation.

The trade agreement with the UK has been criticized as low-hanging fruit. But it may prove the template for other bilateral deals, as it demonstrates the limits of what foreign governments will yield to U.S. tariff swagger.

Trump’s negotiators were able to leverage relief from the 25% additional tariffs on steel, aluminum and automobiles for better market access on some agricultural products, commercial aircraft and ethanol but major irritants like the UK digital services tax and barriers to U.S. chlorine treated chicken exports remain unaddressed.

The 10% across-the-board tariff boost remains in place and likely will be a permanent feature of a more protectionist U.S. trade policy.

Prime Minister Stramer needed a deal as much as Trump. His government is struggling to rekindle UK growth, and the United States is the UK’s largest export market.

The EU and Japan have as much to lose in a fracture of trade relations with the United States—likely more given their bilateral trade surpluses—but they have the option of cultivating fast growing Asian markets.

Tariffs on Chinese goods, even at the suspension period average of 31.9%, are significantly curtailing U.S. purchases. However, in April China’s global exports grew 8.1, because its factories found new customers in South Asia, Africa, Latin America and Europe.

That’s the rub, if America behaves too much the bully, our friends will be transactional—make some kind of deal to avoid the worst of the Trump’s tariffs but also do more business in China and faster growing emerging markets.

Bessent is seeking provisions in bilateral trade deals with major partners’ commitments to help contain China.

Noticeably absent from the UK deal is this type of cooperation.

_______________
Peter Morici is an economist and emeritus business professor at the University of Maryland, and a national columnist.