The relationships between the United States and its trading partners are at their most strained point in decades. Rising global tensions now go beyond religious, military, and territorial disputes. Since Donald Trump returned to the presidency, his administration has placed renewed emphasis on the United States’ chronic trade deficit with the rest of the world and the decline of manufacturing as a percentage of the GDP. In recent months, there have been numerous back-and-forths, negotiations, and escalating retaliations over trade barriers.
While much of the media has focused on U.S.-China relations, a more immediate concern for manufacturers is the looming July 9 deadline — the expiration date for the current pause on reciprocal tariffs between the U.S. and several key trading partners, including the European Union, United Kingdom, Mexico, Canada, and others.
Negotiations — Where are we?
U.S. trade negotiations can be divided into two distinct tracks: those with China, and those with the rest of the world.
China
Regarding U.S. negotiations with China, on May 14, both countries issued a joint statement agreeing to a 90-day pause on further tariff increases and reducing reciprocal tariffs to 10%. Negotiations between the U.S. and China have since progressed, culminating in an agreement announced on June 10. Under the deal, the U.S. will impose 55% tariffs on Chinese imports, while China will apply 10% tariffs on U.S. goods. However, the agreement still requires final approval from presidents Donald Trump and Xi Jinping.
The deal also covers restrictions on exports of rare earth elements and semiconductors, and it grants Chinese students continued access to U.S. universities. Still, key details, including the timeline for implementation, remain uncertain. Given that the deal is part of a broader U.S. strategy to reindustrialize and counter Chinese leverage in specific sectors, U.S. manufacturers should expect tariffs to remain higher in sectors like steel and aluminum.
Key Partners
As for other key trading partners, tariffs have been suspended until July 9. However, negotiations are ongoing and expected to be extended before the deadline.
- European Union: European officials have signaled that a 10% reciprocal tariff rate is likely to be the baseline in any future trade agreement with the U.S. However, if no deal is reached before the July 9 deadline, tariffs could climb as high as 50%. The current U.S. administration has already imposed a 50% tariff on European steel and aluminum, along with a 25% levy on automobiles. In 2024, the European Union recorded a $236 billion trade surplus with the U.S., making it a focal point of ongoing trade tension.
- Mexico and Canada: A baseline 10% tariff rate is expected in any future deal. Steel imports currently face a 50% tariff, while a previously announced 25% levy remains on hold. The U.S. has raised concerns over labor rights violations and potential breaches of the United States-Mexico-Canada Agreement, enacted in 2020 to replace the North American Free Trade Agreement in an effort to create a more balanced and reciprocal trade environment. Countries are undergoing domestic consultations ahead of the 2026 USMCA review. The Trump administration may use that process to push for stricter rules of origin on autos, bans on imports linked to forced labor, and new limits on Chinese companies operating in North America.
- United Kingdom: At the G7 Summit in mid-June, U.S. President Trump and U.K. Prime Minister Starmer finalized a preliminary trade agreement focused on key sectors. The deal lowers tariffs on U.K. car exports to the U.S. from 27.5% to 10%, with an annual quota of 100,000 vehicles. It also eliminates tariffs on all U.K. aerospace products. However, steel and aluminum remain unresolved, with a 25% tariff still in place. The U.S. is also considering a quota-based exemption for British metal suppliers.
Source: Holland and Knight.
As a result of the numerous trade actions, the average U.S. tariff on all goods imports from the rest of the world increased from 3% percent to 11.7% percent between Jan. 20 and May 3, 2025. It appears the U.S. is prioritizing reaching an agreement with China before engaging in trade negotiations with other countries. Therefore, regardless of any new developments related to the USMCA or the EU, U.S. manufacturers should not expect significant changes regarding imports from other regions in the near term.
Possible Outcomes
While the tariff pauses reduce direct reciprocal tariffs, the layered nature of these duties means that many industries — particularly steel, aluminum, automotive, technology, and agriculture — continue to experience disproportionate tariffs. Manufacturers with customers or suppliers in these sectors should closely monitor the potential medium-term impact of sustained higher tariffs.
As negotiations progress toward the deadlines, manufacturers must prepare for different scenarios.
- Extension of the trade truce is the most likely outcome, given the nature of the parties involved, who are expected to pursue the best possible deal and present it as a victory. At present, the U.S. economy is in a stable condition, meaning it is not negotiating from a position of vulnerability.
- Return to higher tariffs: If a new agreement is not reached, tariffs could revert to previous levels: 125% for China, 50% for the EU, and 25% for Mexico-Canada. Tariffs would have a great impact on manufacturers, significantly increasing costs but also opening a window for new businesses to replace foreign suppliers.
- Creation of a new trade framework: This is likely to happen eventually with most regions, but parties may continue to use the threat of new tariffs as leverage during negotiations. Overall, after July and August, manufacturers should expect average tariff levels to remain above the current reciprocal 10%, with significantly higher burdens on strategic sectors.
With tariffs remaining higher and negotiations uncertain, companies should not wait for a clear resolution in the near term. Instead, manufacturers must proactively evaluate their operations, supply chains, and cost structures now. Ignoring these challenges risks cost escalation and lost competitiveness with domestic and foreign companies.
Strategies for Manufacturers
Given the persistent uncertainty and elevated tariff levels resulting from ongoing trade tensions, manufacturers face significant cost pressures and operational challenges. To remain competitive and manage risks effectively, manufacturers should consider diversifying supply chains to reduce dependence on highly tariffed markets and explore alternative sourcing options.
Adjusting pricing strategies will also be fundamental to absorb new costs where possible and pass them along the supply chain where necessary. Transparent communication with customers about potential price adjustments can help maintain trust and foster long-term relationships.
Investing in operational efficiencies like automation can also help offset some of the financial burdens imposed by tariffs. Cost improvements will become an increasingly critical factor going forward, as manufacturers will face greater domestic competition from American companies across most sectors.
When government intervention in the economy intensifies, it becomes increasingly important for manufacturers to build strong relationships with industry groups. Actively engaging with these organizations will allow companies to better advocate for their interests and influence policy decisions.
Whether tariffs are extended, increased, or changed, uncertainty isn’t going away. Manufacturers should shift from simply reacting to taking control by reassessing supply chains, cutting costs where possible, and strengthening their market positions. At the same time, exploring product development in key industries where tariffs are expected to stay high can create new opportunities and provide a competitive edge.