While we’re waiting around for the House to act on the BBB, Trump announced that he had a trade deal with Vietnam. The deal consists of a 20 percent tariff on Vietnamese goods, increasing to 40 percent for pass-through goods, and no tariffs on American goods. What should we make of this?
I think you can assume this will be the template for agreements with less developed areas in Africa and Asia. The objectives clearly are to maintain incentives for friendshoring relative to China and to encourage domestic production relative to the rest of the world; the ultimate hope is that the tariff wall will create a domestic manufacturing boom which will reduce imports and cause our bilateral trade deficits to disappear.
American consumers will pay for this deal in the form of higher prices. The real question is whether these tariffs are sufficient to create competing domestic manufacturing businesses. I’m pretty sure the answer is no, even in the long run, but I guess we’re going to find out.