- 9 months ago
Matthew Martin, senior U.S. economist at Oxford Economics, joined Brittany Lewis on "Forbes Newsroom" to discuss the recently announced framework for the trade deal between the U.S. and the U.K.
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00:00Hi, everybody. I'm Brittany Lewis, a breaking news reporter here at Forbes. Joining me now is
00:07Matthew Martin, senior U.S. economist at Oxford Economics. Matthew, thank you so much for joining
00:12me. Thanks, Brittany. Pleasure to be here today. A little bit over a month after Liberation Day,
00:19President Trump unveiled details for a framework for a new trade deal between the United States
00:24and the United Kingdom. And this is the first trade deal since President Trump unveiled that
00:29sweeping tariff plan. Based on what we know so far, based on the details that came out,
00:33what sticks out to you? What are some of your takeaways? Yeah, I think there's some pretty
00:38key components to it and some definite takeaways for future trade deals that we can get into.
00:44Details are still coming out. It's certainly kind of at a very high level. I think there's still
00:47weeks and months to come and kind of hammering out the finals. But some ones that stick out to us are
00:51obviously some wins, you would say, for the UK. Mainly on the auto side, they are now going to be
00:59facing a 10% tariff rather than a 27.5% tariff on the first 100,000 cars imported into the U.S.
01:07Now that is certainly what you might call win, and that's what the UK is touting it as. But that's
01:12still an increase of 7.5% from the prior 2.5% they faced in 2024. So still a pretty large increase,
01:20but less so than we previously thought. There's also now going to be a 0% tariff applied to steel and
01:27aluminum products imported into the U.S. from the U.K., which is obviously down from the 25%,
01:31which you certainly could categorize as a win. Now that's a big piece for the U.K. I think about
01:369% of their exports in steel go to the U.S., but the U.S. imports only around 1% of its steel from
01:42the U.K. So really the impacts are a bigger win for the U.K. than the U.S. overall. There's some
01:48additional details in terms of expanded market access for agriculture and some commitments to work
01:54together on pharmaceutical imports into the U.S. from the U.K., but those details are still pretty
01:59limited at this time. For the U.S., it just is mainly expanded market access and agriculture,
02:05as well as some machinery, around $5 billion in exports, and then a commitment of $10 billion for
02:12aerospace purchases from the U.K., specifically from Boeing. So there are some wins from the U.S.
02:19there, but still very high level and very industry specific at this time.
02:25It's interesting what you said that this is a bigger win for the U.K. than the U.S. I mean,
02:29is this a good deal for the United States? Was it worth all of this tariff whiplash and the back
02:34and forth and the potentially souring of relationships with our allies? I think that's kind of a broader
02:42point to a lot of the negotiations that will go on. I think from the Trump's administration's point of
02:49view, this is definitely a win. I mean, first and foremost, the effective tariff rate on all other
02:53goods is still going to be 10 percent. So that's going to be impacting a lot of other markets. So
02:59really what we this trade deal is very specific to certain industries. So I think Trump would still
03:04say it's a win. That's how he's touting it in the fact sheet and truths that he's put out since.
03:08Um, and the expanded market access is certainly kind of a big piece. If we kind of amounted that
03:14to 15 billion dollars, that's a lot of money. Um, but when you kind of put it in terms of a,
03:20the fact that that's not, they didn't kind of specify, is that this year, is that spread over
03:24multiple years? Um, and even if it was just one year, that represents about 0.7% of total U.S.
03:31exports. So still a pretty small portion. Now, obviously on the bilateral side, uh, the U.S.
03:35imports around, sorry, exports around 80 billion dollars to the U.K. So 15 billion dollars would
03:41be a large increase on a bilateral side. But again, uh, from a total export side, it's still
03:46pretty small. So, you know, I think there's a lot of give and take here. Uh, I think both sides are
03:52touting it as a win, but I think the most important point to kind of come back to is regardless of the
03:57industry, uh, you're still going to see an increase in effective tariff rate. And that is going to have a
04:01big impact on, um, U.K. imports and exports. Um, and it's kind of still left to be seen whether this
04:08is worth, um, kind of the back and forth. The U.K. isn't one of the United States' top trading
04:15partners, so you don't crack the top five. So what are exactly the economic impacts of this agreement?
04:22I think it's pretty small. Um, I think from a consumer standpoint, unless you were in the market
04:27this year for a Jaguar or Bentley, you're really not going to be, um, too much impacted. And again,
04:32you're still going to be seeing a 10% increase, uh, of tariffs there rather than the two and a half
04:36percent they, um, increased, uh, or imposed, uh, last year. So really you're talking about very high
04:43end consumers who might be looking at these, uh, kind of your middle income, low income households
04:47probably aren't looking at those, uh, from a business perspective, those who have been importing
04:51steel, um, this is definitely a win from them, but I'd go back to the point again that it's around
04:55one percent of total, uh, imports, uh, of steel come from the U.K. So most businesses are still
05:00going to be impact or at least, uh, for now still facing 25% tariffs. So the overall economic benefit
05:07is still pretty low, uh, and is still outweighed by the fact that all other goods are going to be
05:1210%, um, tariffed. So, you know, it's, uh, still probably a net negative, uh, overall for businesses
05:19and households, uh, at this time, though there are certainly winners of those who are exporting
05:23ag products to the U.K., um, as well as Boeing, who have received that kind of commitment of 10
05:28billion in purchases. So there's very small winners in there, but I think as a whole, the economic
05:33impact is still kind of towards the downside. And the markets, as we know, do not like tariffs and
05:39this tariff whiplash. And on Thursday, after the deal was announced, U.S. stocks reacted very
05:44positively to the news. So what does that market response indicate to you?
05:49I think what, in general, this does kind of point towards a de-escalation in tensions,
05:56uh, or at least trade tensions and kind of sets the stage for further de-escalation amongst many
06:00trading partners. I think our baseline, uh, forecast has always been that, that July 9, uh,
06:06deadline for the reciprocal tariffs that go in place was always going to be kind of come and pass
06:10and that most countries are going to still see, um, a 10% baseline tariff rate. And I think that's
06:16kind of what the market is probably still kind of reacting to is that it's a modest de-escalation
06:22in trade talks. Um, now I think it's still a bit muted, um, a 10% baseline tariff, uh, with only
06:28certain exemptions is still a large increase overall. And where really where we're still yet to see is a
06:33de-escalation on the China and U.S. trade relations. Now, obviously we're set up this weekend to begin
06:38talks there. Um, but even if tariff rates are brought down from their 120% to, I think Trump
06:45tweeted today, uh, 80% tariff, is that really going to make a difference for U.S. importers? That is
06:51still a prohibitive, um, increase in overall tariff rates. So I think there's still a lot of work to be
06:56done. And while the market response was generally positive, I still think there is, um, plenty of kind
07:02of risk, uh, involved there. Keir Starmer was not combative with President Trump after he announced
07:09the tariffs on the U.K. I'm curious, even after this deal was announced, you do see that 10%
07:14baseline tariff. If I'm a leader from another nation that's going to the negotiating table with
07:20the Trump White House, what does that indicate to me? I mean, does that mean everyone now that 10%
07:25baseline that's in effect for everyone? You know, I, I think it's tough to kind of, um, forecast how
07:33these negotiations are going to go, just how tariff policy has been so back and forth. So I
07:37wouldn't, uh, certainly claim that that would be the starting point for, uh, most trading partners.
07:41I think what they would see is that there really wasn't large, uh, scale, um, kind of concessions
07:47from the U.S. They still start with a baseline 10%. Um, others might face a higher baseline. So I don't
07:53think you're likely to see a lot of concessions from other trading partners themselves, maybe
07:57sectoral specific ones. And I think it really kind of highlights the fact that trade negotiations
08:02and trade agreements are very detail oriented and very hard things to kind of push across the line.
08:08There might be small, uh, agreements put in place, but kind of wide ranging changes to the
08:13overall trade landscape kind of through these trade agreements is unlikely to be unlocked in
08:17negotiations over a week or months. These take potentially years to do, even when you're doing
08:22one-on-one now, let alone doing 90 plus trade agreements, you know, it's, it's very hard
08:27to see kind of, um, very detailed, uh, approach to these negotiations. And it's likely to kind
08:33of really, again, continue to focus on very sectoral or industry specific exemptions or concessions,
08:39um, rather than kind of broad scale, um, trade de-escalation talks.
08:44And this is one deal down dozens and dozens to go. We know that the U.S. and China officials
08:50are meeting in Switzerland this weekend to begin trade negotiations there. When you're thinking
08:55about trade negotiations between the United States and other nations at large, what specifically are
09:01you looking out for next? Again, I think a lot of this is going to be kind of, do we get a more
09:08detailed approach when we go to these trade negotiations? Is it more of this just very sectoral
09:13exemptions and we still have a 10% baseline for all other goods? Are there further kind of, um,
09:20wins that the Trump administration can tout, which eventually could maybe lead to further
09:24de-escalation kind of globally? Um, I think that's really the, where the balance is going to be kind
09:29of, um, met is how much is Trump willing to kind of give, uh, and how much is our other countries
09:35willing to give as well? I think from a very high level, I think kind of the economic impacts are still
09:40going to be large. I think we're still looking for, uh, increases in good prices across the board
09:45here in the U S, uh, that's going to impact consumer, uh, spending, business investment,
09:50and we're still looking for kind of, uh, uh, overall pretty dark and stormy, um, outlook over
09:55the next couple months and quarters. Um, now that could be slightly less so if we see some kind of
10:01bigger, uh, concessions made by other countries, maybe that could get the ball rolling, um, to
10:06further talks. But again, um, I still think it's a very uncertain period for not only households,
10:11but businesses as well going forward. I'm curious how dark and stormy you think exactly
10:17it's going to be getting. Do you think, I know economists have said that these tariffs could
10:21push us to the brink and beyond of a recession. Do you think that the, by seeing this first deal,
10:27I mean, what are the chances of a recession here in your opinion? I think the chances of recession are
10:33kind of declining as you start to see some of these trade negotiations put in place. Um, obviously
10:38we're seeing kind of positive market reactions, which will kind of benefit households through,
10:42uh, higher stock prices, which is a good thing. Uh, businesses might not be as, um, willing to
10:48kind of cut back on investment or might be more willing to expand assuming that trade negotiations,
10:52um, kind of create less uncertainty. So that would still be a, uh, maybe a positive for us.
10:58So I think recession risks overall are declining, but there's still kind of very elevated. And, uh,
11:02for the most part, uh, the biggest hit is going to be consumers. Um, if they start to see
11:07kind of higher goods prices, that's going to eat into their disposable incomes that might cause them
11:12to pull back on spending, which then businesses will then see less demand that could, um, push them
11:19towards either layoffs or reduce their hiring plans, which should then feed further into, uh,
11:24decreases in, uh, household income. So really, uh, I think overall, we're looking for a pretty
11:29weak growth over the coming quarters. We're not looking for anything negative over the rest of the
11:33year. Uh, but paired with high inflation is really going to be a kind of, um,
11:37a worse of both, um, outcomes for the economy. Slow growth, high inflation, obviously known as
11:44stagflation, um, is going to be a hard, um, path for not only businesses, consumers to kind of fall
11:50through, but obviously, uh, the federal reserve as well. Well, slow great growth paired with high
11:55inflation. No one wants to hear that, but as we, as we see more trade deals develop, I hope you come
12:02back on and join me and break them down. Matthew Martin, thank you so much for your time today.
12:07I appreciate it. Thanks again for having me.
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