The U.S.-UK deal shows the trade war is here to stay

Markets cheered the new trade pact between the U.S. and UK yesterday. But the details show that trade war relief will only go so far, even as the de-escalation road map becomes clearer.The big picture: The first significant trade accord of this Trump term affirms that the president is in dealmaking mode and wants to steer around the kinds of economic risks generated by his original announcement of large-scale reciprocal tariffs.But U.K. imports will continue to carry a 10% tariff, up from a pre-Trump average of 1.3%. The president referred to that as the "lowest end" import tax.The British were perhaps the best positioned among major economies to reach a quick deal with the Trump administration.Things get harder from here, with bigger trading partners — China, Canada, and the European Union — facing deeper mutual hostility, bigger trade imbalances, and more complex disputes.Between the lines: The U.K. deal offers something of a template — perhaps even a best case — of what other countries might achieve in rapid-fire talks with the U.S. government.The U.S. runs a trade surplus with the U.K., has deep geopolitical ties, and the British government has moved gingerly around any talk of retaliation.As Evercore ISI's Sarah Bianci writes, "if the UK isn't getting down to zero, it is very unlikely that anyone is."Zoom in: Nothing about this process resembles the kind of drawn-out, point-by-point negotiation that would normally occur between two major economies. But it does show that the Trump 2.0 is not a one-way ratchet — that trade barriers won't necessarily only go up.What they're saying: "This is not a finished classic bells and whistles free trade agreement," a British official told reporters yesterday. "It started off as a tactical response to President Trump's tariffs, but actually morphed into a more substantive trade agreement."""The optics are out of the way," the official said. "We've done the Oval Office. Now we've got more serious work to do."Reality check: With 10% import taxes looking like the new minimum — and other countries with more contentious trade relationships likely to continue seeing significantly higher tariffs — there will be serious sand in the gears of global commerce for the foreseeable future."With the baseline 10% not going anywhere, the average US tariff is still set to remain in double digits, which will deliver a big hit to real incomes in the US which will cause growth to slow sharply in the second half of the year," writes Micheal Pearce of Oxford Economics in a note.And the deal did not touch contentious issues around opening up British healthcare markets to US firms, or the. UK digital services tax. "Other countries will be unwilling to offer significant politically difficult concessions in return for minor tariff relief," Pearce said.The bottom line: There is now a framework for trade war de-escalation. But imported goods are still going to cost more, and other, bigger trading partners may struggle to reach similar accords.

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