Trump Letters Could Chill Ongoing Dealmaking, Former Trade Negotiators Say

Mark Linscott, a senior adviser with The Asia Group and former assistant U.S. trade representative for South and Central Asia, said that the letters shift tariff rates up and down for countries, "but on what basis? What's the methodology here? Why?" Without understanding the methodology of the rate changes, countries cannot negotiate seriously, and it is difficult to have "credibility in negotiation when you know you don't even understand what's underlying these negotiations," he said.

Wendy Cutler, vice president of the Asia Society Policy Institute and a former acting deputy U.S. trade representative, said the U.S. is not honoring current free trade agreements with historically allied partner nations, which casts a pall on current negotiations: "I don't think this White House is putting any value on our current FTAs. And I think that is just one more concern among our partners: 'What do we do going forward? Are these deals worth anything anymore with the United States?'"

Cutler, speaking at the event hosted by the Washington International Trade Association, said she was unsurprised that the Trump administration failed to negotiate trade deals as quickly as it had advertised: "the administration bit off more than they could chew." She said that not only is a 90-day period for negotiating deals too short, "trying to do this with so many partners at the same time is really an insurmountable task, so I think it's only natural that there was an extension."

Daniel Mullaney, a senior fellow at the Atlantic Council and former assistant U.S. trade representative for Europe, said that those who were anticipating a completely comprehensive deal were "really being unrealistic. I think what we were really looking for is some kind of a short agreement." However, he argued that "from the European Union standpoint," the fact that there was an extension and no letter is "really good news."

Mullaney said that he would have expected a deal with the EU, "if the July 9 deadline held," similar to the one that the U.S. announced recently with the U.K., which he characterized as "kicking the can down the road, pending other discussions." He praised the continued engagement between the U.S. and the EU, saying that "minus something going off the rails, I'm relatively hopeful we can get something positive by August 1."

The letters Trump has sent "reflect that the President doesn't think that there's sufficient engagement, whether true or not," Mullaney said. He views them as "a signal that he wants to up the pressure." That the EU didn't get that letter suggests to him that "he hasn't been alerted on his side that the EU is foot-dragging or not dealing in good faith. So that's why I consider no letter to be good news."

Linscott said that the negotiations "got lost a little bit" in the provocative nature of the letters. He described the letters as "jaw-dropping in many respects," and that he "actually gasped" when he started reading the one to Brazil: "It was truly remarkable." He said that he doesn't see how sending the letters "enhances the leverage associated with the negotiations," because he found them "a bit offensive, specifically on India."

"We were expecting a deal [with India]," Linscott said. "We've been expecting an announcement of a deal since last week," and it "was pretty clear that the negotiators on both sides had essentially concluded an agreement" in principle. He said the text of the agreement is in place, "and it's with the president. So why hasn't it been announced?"

He worried that if India were to get a letter at this stage in the negotiations, it "would be a real problem," because "there's been a lot of substance put on the table." So to him, "getting no letter is much better than getting a letter at this point in time."

Cutler said that even deals already signed could become less certain as broader tariff policies become more clear. She said that Vietnam had agreed to eliminate all of its tariffs against the U.S. and "is still receiving a tariff of 20% or 40%." Vietnamese officials are "looking at that letter to Malaysia, for example," which has no trade deal, and has given up nothing and is facing only a 25% rate. She said that "everyone's going to be looking at what everyone else is getting," because "politically, if you go home with a deal and you've gotten less" than other countries in their region, "it could lead to a lot of opposition or no support at home for these deals." These dynamics will increasingly complicate negotiations, she said "with lots of different factors on all of these countries' minds as they go forward" in their negotiations.

Linscott questioned if the Vietnam deal could even be considered a deal. He said that he was "hugely skeptical of" the claim that the Trump administration had negotiated "getting zero tariffs across the board in Vietnam." He speculated that the deal was "prematurely announced" and that perhaps the "negotiators weren't done yet." The eventual deals that will be struck in the region "will be very different in substance" to the frameworks being discussed now.

Mullaney quipped that the current negotiations were "like the old joke about how you don't have to outrun the bear, you just have to outrun your companions."

Cutler complained that U.S. FTA partners "are being penalized" because they already have zero tariffs on U.S. goods and thus have nothing with which to negotiate: "So unlike in India or Vietnam, that has high tariffs, and then can offer lowering or eliminating those tariffs, if you're an FTA partner, you don't have that tool." This is causing some countries such as Australia and Singapore, she said, to assume "that they're going to be assigned that 10% tariff" and that further negotiating is useless.

Linscott said that the letter to Brazil "certainly went much further in provoking, being provocative, than the other letters." He said the threatened 50% rate "clearly seems punitive" and addresses "a political issue, as opposed to a real trade issue."

Michael Smart, the moderator and managing director at Rock Creek Global Advisors, remarked that, based on the fact that the tariffs are supposedly supported by a national emergency arising from persistent trade deficits, "the Brazil letter probably did not go through White House counsel or the Office of Legal Counsel over at DOJ."

Mullaney said that the Brazil letter offered a lesson that while the "trade world" tends to see trade negotiations "as sort of one silo" in which "we make exchanges within the trade world," Trump "doesn't see things that way." Trade is only one part of a broader picture to Trump, Mullaney said. Changes in an area traditionally viewed as belonging to domestic politics or national security, he said, can profoundly impact trade: "You can be doing very well identifying things you can do to remove barriers and addressing particular sectors, but then you can have a situation where one member of NATO in Europe starts balking at going up to 5% [defense spending] and the whole [negotiation] could go south."

Another factor complicating trade negotiations is the looming threat of China and U.S. negotiations with it. Cutler said that the U.S. is demanding that Association of Southeast Asian Nations (ASEAN) countries take measures counter to Chinese interests, and "if China is going to take countermeasures, it's more likely for Beijing to take them against our trading partners, and not the U.S." Additionally, the negotiations with China have a later deadline of Aug. 12 rather than the Aug. 1 deadline for other countries, so, she said, there "is a concern that they may end up with higher tariffs, or tariffs equal to China."

Mullaney said a similar calculus complicates negotiations with the EU because the U.S. is pressuring the bloc to take a firmer line against China; if they do, and the U.S. "cut some kind of a separate deal" with China, then the EU "is suddenly left out on their own, with all their vulnerabilities" to China. This calculation represents "an obstacle to full-throated cooperation with the United States on these sort of non-market economy policies" that Trump loathes.

Linscott said that India and Japan have similar reservations about being explicitly anti-China, which represents "a continuing challenge in deals."

Ultimately, the speakers agreed that any dealmaking is reliant on Trump's caprice. Linscott said that often "these trade negotiations and trade relationships are personal. And he [Trump] imposes those personal views on negotiations in many respects, in terms of what the expectations are." The situation with Brazil is "deeply personal" and Trump is the ultimate decision-maker in any deal, Linscott said.

Smart agreed, saying that the president's trade positions are volatile and "seemingly driven, in some cases, by personal pique and that kind of thing."

Linscott said that he hopes there is some success from "the brazenness" of Trump's approach but that "it'd be really unfortunate if we've burned up relationships, and then we don't have anything to show for it in terms of new trade agreements." That could have a negative effect on the morale of trade negotiators, he said, because "they're starting to feel overwhelmed and not entirely clear about what their mandate is."

Mullaney was hopeful that the courts and economic indicators might constrain Trump from making enormous policy swings on trade deals. If the outcome of the litigation over the International Emergency Economic Powers Act tariffs is unfavorable for Trump, "some of the parameters might start being more sharply defined" for what tariff policy can be exacted at his whims. The moderating influence of the courts and the bond market's response to tariffs may lessen the volatility on the rates and conditions coming from the White House, and that "may mean that we could move into a different phase."

Cutler concluded less optimistically, saying that the volatility "affects the negotiating climate." She gave the example of India. which was "about to finalize a deal" when Trump threatened additional tariffs on countries in the [economic bloc of Brazil, Russia, India, China and South Africa, or] BRICS group. This kind of situation "just raises more uncertainty and more questioning," she said. "What are the value of these deals if they are hit by all sides with all different types of tariff actions going ahead?"