Bond Economics: Trump Trade “Deals”

Recent comments by Donald Trump seemed to confirm what he implied in his earlier remarks: the “90 trade deals in 90 days” he promised generally did not refer to formal trade treaties. Instead, they would be more informal negotiations about setting American tariff levels. As quoted in a NBC report:

“I think my people haven’t made it clear, we will sign some deals,” said Trump. “But much bigger than that is we’re going to put down the price that people are going to have to pay to shop in the United States. Think of us as a super luxury store, a store that has the goods.”

Putting aside the syntactical problem that this is about countries selling to the United States and not buying (shopping), the process will mainly about finding a “price” for continued access to U.S. markets at a lower tariff rate. There may be some formal trade deals in the mix (for example, reports about the U.K. reaching an agreement recur), but those will be exceptions.

(Canadian Prime Minister Marc Carney met President Trump, and the Canadians I follow on Bluesky argued that it went much better than was feared — I did not see it myself. The big trilateral Canada/Mexico/U.S. trade deal is due for renegotiation in 2026, which is a future land mine to worry about.)

Although it might be possible for autocratic regimes to cut deals in the form of payments to reduce the American tariff rates they face, such a strategy will not work for democratic countries. Who makes the payments? Who receives the payments? Why are these “deals” binding?

If the payments are to the U.S. government, why exactly is a firm going to pay an upfront payment for the privilege of possibly making facing lower tariffs in case it has American sales? Why not just “pay the tariff” if and when the sale is made? (Technically, the importer of record pays the tariff, but both sides in an international transaction will take the tariff into account when negotiating the price.)

The only reason to make an upfront payment is if the payment is relatively small relative to projected tariff payments. But why would the U.S. government accept a small payment instead of getting larger tariff revenues? The obvious response is that the payment would not be going to the U.S. government, rather to the entity negotiating the deal.

Although the situation reeks politically, the bright side is the opacity of the process will allow President Trump to declare victory any time he wants. If he indicated that he wanted formal trade deals, he would have been politically paralysed by the lack of capacity to negotiate those deals. This is certainly the logic that is buoying markets. Nevertheless, there does not appear to be a feedback mechanism to force the “declare victory and go home” option. President Trump projects the belief that everyone is cracking and desperate to make a deal quickly, but other than a few exceptions, that feeling is not being reciprocated in public comments.