A mantra is spreading among tired business executives resigning to President Trump's tariffs, hoping to avoid the worst of their effects. 10% is a new zero.
The statement refers to the 10% tariffs Trump introduced on most US imports a month ago. Such a massive increase in US tariffs would have been unthinkable a few years ago. But it doesn't seem like that much anymore compared to the truly large tariffs Trump has already imposed and threatened elsewhere.
Trump's “liberation day” announcement on April 2 said he had planned a 10-60% tariff, with dozens of American trading partners launching flights from the US dollar as they panicked over the bond market defeat and investors panicking over the prospect of an economically devastating trade war. Trump also ratcheted tariffs in China to a minimum of 145% amid trade spewing with trade with Beijing, halting much of the country's trade.
The confusion appears to have somewhat milder Trump's impulses. The president quickly suspended tariffs in most countries and instead gave 90 days to negotiate trade deals.
Trump also granted electronics manufacturers a favorable exemption from China's tariffs and provided limited relief to automakers. And he says he's “flexible” and hints at something more can be done.
Investors are highlighting the signs of good news. The stock market is currently working to reclaim almost all of the losses it maintained since April 2nd, shutting down trade deals with its allies, backed by comments from Trump administration officials that it is looking for an opening to negotiate with China.
The speed at which investors have come to accept Trump's tariffs reflects an increasing embrace of tariffs as a policy tool. It also shows the decline in America's resistance to predatory trade practices in countries like China, which dominated global industries and systematically left rival manufacturers around the world.
But it also shows something about Trump and his negotiation style. By threatening huge tariffs in early April and retreating them, the president appears to have increased his acceptance of important tariffs, at least in some circles, that remained.
This is a classic example of a psychological effect known as anchors. This is when a large amount of information discarded during the negotiation process can reset the entire frame of reference.
Sekoul Krastev, co-founder of Decision Lab, which works with governments and organizations to apply behavioral science lessons to the government and organizations, said it was one of the more rigorous and tested in behavioral science. In all types of contexts, researchers have discovered that throwing out many can quickly reset people's expectations of the normal and appropriate ones.
For example, according to Krastev, a car salesman who wants to sell a $50,000 car will first show a $80,000 car. However, the value does not even need to be related to the decision being determined. In the experiment, people asked to think about Mount Everest's height later wanted to spend more on the couch than they had previously spent, he said.
“I think it's playing,” he said. “Suppose you have set up a very high tariff anchor, which will result in a much higher acceptable tariff range than before.”
The truth is, of course, that tariffs currently essentially still constitute both a major change in global trade and a major national tax hike. The US has a 10% “universal” tariff that is effective for most imports around the world, and a 25% tariff on imported cars, metals and goods from Canada and Mexico. Overall, according to Yale's Budget Lab, consumers face an average valid tariff rate of 28%, the highest since 1901.
These tariffs may seem easier to manage compared to the three-digit tariffs currently in effect on two-digit tariffs suspended on Chinese goods and dozens of other countries. However, in some companies, a 10-25% tariff is sufficient to eliminate profit margins, expand profit margins, hire employment plans, or remove the business. The US Chamber of Commerce has warned that many small businesses in particular may not survive.
Speaking at the Milken Institute Global Conference this week in Los Angeles, Citigroup CEO Jane Fraser said companies could withstand tariff reductions, but trade uncertainty forced them to suspend investments and employment.
“In 10% of the clients we talk about, they say, 'Yeah, we can absorb that,'” she said. “At 25%, that's not that much.”
Some of the moves investors interpret as good news are also rather small cuts in a significant increase in trade protectionism. For example, while the exceptions given to carmakers last Tuesday were relatively few, the prices of stocks in some carmakers that day increased. Trump gave an exception to tariffs on auto parts, which equals 15% of the value of a first-year car. This was reduced to 10% in the second year, which disappeared in the third year. Automobile companies have been given relief from 25% tariffs on steel and aluminum, but only if they are paying 25% tariffs on foreign cars or parts.
And while Beijing and Washington appeared to be expressing something more open to finding a trade standoff solution between the US and China last week, countries have come a long way. Formal negotiations have not been launched, and the US has a serious trade dispute with China.
Treasury Secretary Scott Bescent told lawmakers there is no move with China yet. “China, we are not engaged in negotiations yet,” he said.
The Trump administration may choose to quickly drop some of the tariffs on China as a goodwill gesture when the country resumes negotiations, but tariffs are rising so much that the US must cut tariffs by more than 100 percentage points to significantly resume trade.
Perhaps most importantly, despite being persuaded to show flexibility, Trump remains a self-proclaimed “customer man” and is reflexively drawn to the power of economic tools he considers to be an effective way to persuade global corporations to be brought to the US.
Trump continues to find ways to roll out tariffs that he barely expected. In a post on Truth Social on Sunday, he proposed adding 100% tariffs to films produced abroad, saying Hollywood is dying “very fast death” and claiming this is a threat to US national security. On Monday, the president said tariffs on drugs would come in the coming weeks, and he had already decided on the fees.
In a speech on Sunday, European Union trade committee chairman Maros Sevkovic said “more US tariff actions may be ongoing,” pointing to investigations into wood, medicines, semiconductors, important minerals and trucks.
He said 97% of EU exports to the US will be subject to taxes if all of these investigations lead to tariffs.
In an interview with NBC's “Meet the Press” broadcast on Sunday, Trump claimed he would maintain the tariff threat no matter what.
Trump was asked if he could take the possibility that some tariffs could be permanent from the table.
“No, I don't do that because if someone thinks they're going to leave the table, why are they built in the US?” he said.
Jeanna Smialek, Alan Rappyport and Tony Rom Reports of contributions.
