President Trump has called his new trade pact with the UK a “maxed out deal.” But behind the headlines, the fine print reveals something less exciting for economists and trade experts: a 10% baseline tariff that could shape all future US deals—and raise the cost of trade.
While this new agreement replaces some harsher levies and could offer short-term relief for businesses, a 10% tariff is still significantly higher than the 3% average seen before Trump’s second term. And according to the Centre for Economic Policy Research, this baseline tariff will likely stick—not just for the UK, but for all US trade partners.
So what’s the economic concern? First, tariffs are a form of protectionism, where governments place taxes on imports to protect domestic industries. In theory, this should boost domestic production and employment. But in practice, tariffs often raise prices for consumers, increase production costs for firms, and invite retaliatory measures from trading partners. Economists call this a lose-lose situation—where global efficiency falls and everyone is worse off.
What usually happens with tariffs is businesses will pay more for the same goods and pass that cost onto customers. That matters, especially in the US, where consumer spending drives 70% of GDP. Higher prices mean weaker demand, and that puts pressure on business growth, investment, and jobs.
More deals are in the works, including a high-stakes meeting with China, where current tariffs sit at a jaw-dropping 145%. Trump hinted they could come down to 80%—still the highest since World War II.
THINK LIKE AN ECONOMIST!
Q1. Define the term protectionism.
Q2. Using an international trade diagram, explain how tariffs affect consumer surplus, producer surplus, and government revenue.
Q3. Evaluate whether the introduction of a 10% baseline tariff on imports is likely to benefit or harm the US economy in the short and long run.
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