A spell has been spread among tired company executives who are resigning from President Trump’s tariffs while still hoping to avoid the worst impact: 10% is the new zero.
The statement refers to the 10% tariff on most U.S. imports that Mr. Trump imported a month ago. A few years ago, a significant increase in U.S. tariffs would be unimaginable. But this doesn't seem to be that big anymore than what Mr. Trump has already imposed or threatened real large tariffs elsewhere.
Mr. Trump announced on April 2 that he planned to impose tariffs of 10% to 60% among dozens of U.S. trading partners, which caused a rout in the bond market and a dollar to flee as investors panic, an economically destructive trade war. Mr. Trump raised tariffs on China by at least 145% in a trade dispute with Beijing, which stopped much of the trade between the two countries.
This turmoil seems to regulate Mr. Trump's impulses to some extent. The president quickly stopped tariffs in most countries, allowing them to negotiate a trade deal for 90 days.
Mr. Trump also granted China taxes tariffs on electronics manufacturers and provided some limited relief for automakers. He hinted that he could do more, saying he liked “flexibility”.
Investors have raised any signs of good news, even unquestionable. Stocks have now recovered from almost all losses after April 2 and have been encouraged by comments from Trump administration officials who are working to reach trade deals with their allies and plan to discuss their standoff with their Chinese counterparts.
The speed at which investors accept Mr. Trump’s tariffs reflects the growing number of tariffs as a policy tool. It also shows a decline in the U.S. tolerance for predatory trade practices in countries like China, which has dominated global industries and systematically lost business to rival manufacturers around the world.
But it also shows Mr. Trump and his style of negotiation. By threatening the huge tariffs in early April and then returning them, the president seems to have increased acceptance of important tariffs that remain in at least some circles.
This is a classic example of a psychological effect known as anchoring, when a certain information (such as a large number thrown during negotiation) can reset the entire frame of reference.
Sekoul Krastev, co-founder of Decision Labs, a company that works with governments and organizations to use behavioral science courses, said the anchoring effect is one of the most rigorous and tested anchoring effects in behavioral science. In all types of cases, researchers have found that by throwing out a large number, they can quickly reset people’s expectations of normal and appropriateness.
For example, Mr. Krastev said a car salesman who wants to sell you a $50,000 car will first show you a $80,000 car. However, that value doesn't even have to be related to the decision being made. In the experiment, people asked to consider the height of Mount Everest, and then prefer to spend more money on the sofa than before.
“I do think that’s working,” he said. “Suppose you set an anchor for very high tariffs – that would make the acceptable tariff range much higher than before.”
The fact is, of course, that the current effective tariffs constitute both a major change in global trade and a huge tax increase in the country. The U.S. still imposes a 10% “general” tariff on most global imports, and a 25% tariff on imported cars, metals and goods from Canada and Mexico. Overall, according to Yale University’s Budget Laboratory, the average effective tariff rate for consumers is 28%, the highest since 1901.
These tariffs appear to be manageable compared to the current triple-digit tariffs for Chinese products and double-digit tariffs for dozens of other countries. But for some companies, the 10% to 25% tariff is still enough to eliminate profit margins, stall expansion or hiring plans, or even turn them out. The U.S. Chamber of Commerce warns that many small businesses, in particular, may not survive.
Citigroup CEO Jane Fraser, speaking at the Milken Institute global conference in Los Angeles this week, said companies could afford lower tariffs despite trade uncertainty forcing them to suspend investment and recruitment.
“If it's 10%, we'd say most of the customers say, 'Yes, we can absorb',” she said. “If it's 25%, that's not that much.”
Some of the moves that investors interpret investors as good news are also quite small layoffs in a significant increase in trade protectionism. For example, the exceptions given to automakers last Tuesday were relatively small, although some automakers had higher stock prices that day.
Although Beijing and Washington have agreed to meet to discuss their trade standoff, the countries still have a long way to go.
Treasury Secretary Scott Bessent and U.S. Trade Representative Jamieson Greer will meet with Chinese officials in Geneva this weekend, where they will discuss trade and economic matters, the Trump administration said Tuesday.
Once countries restart negotiations, the government may choose to quickly use some of its tariffs as a gesture of goodwill, but the tariffs are so high that the United States may have to cut it by more than 100 points to meaningfully restart trade.
It is not clear how much progress can be made in serious economic disputes encountered by the country. The Trump administration criticized China for its unfair trade practices and its failure to uphold the terms of a trade deal negotiated by the president during his first term. In return, China calls Trump's tariffs “illegal and unreasonable.”
Perhaps most importantly, despite being sometimes convinced to show flexibility, Mr. Trump remains a self-proclaimed “tariff man” who reflexively attracts the power of economic tools, a way he sees as an effective way to convince global companies to bring their factories to the United States.
Mr. Trump continues to find ways to find tariffs that a few people expect. In a post on Sunday in “Social Truth” he proposed adding 100% tariffs to films made abroad and said Hollywood was dying “very fast death”, believing it was a threat to U.S. national security. The president said on Monday that tariffs on pharmaceutical companies will be reached in the next few weeks, and he has decided on that rate.
“More U.S. tariff actions are likely to be moving forward,” EU Trade Commissioner Maros Sefcovic said in a speech on Sunday, noting an investigation into wood, pharmaceuticals, semiconductors, critical minerals and trucks.
He said that if all these investigations resulted in tariffs, 97% of EU exports to the United States would be taxed.
In an interview with NBC's Meet Media, Mr. Trump insisted that he would retain the threat of tariffs anyway.
Mr. Trump was asked if it was possible to bear some tariffs that would be permanent.
“No, I wouldn't do that, because if anyone thinks they're leaving the table, why would they be building in the United States?” he said.
Jeanna Smialek,,,,, Alan Rappeport and Tony Romm Contribution report.
