How Trump turned the tide in his trade war

CNN

23-07-2025

Source: CNN
President Donald Trump has pulled off an impressive feat: He is raising tariffs on some of America's most important trading partners, and the world is largely cheering the agreements as victories.
Placing historically high taxes on imports from around the world — particularly at a time when American consumers are still reeling from the highest inflation they've experienced in four decades — marked one of Trump's boldest gambles of his presidency. Trump was largely elected on his pledge to fix Americans' finances. Economists have widely shunned his trade policy, which is expected to raise costs for businesses and consumers.
But Trump zagged when everyone was zigging, and — so far — the bet has paid off. He achieved that with some old-fashioned psychology: setting the bar so high for potential tariff pain that anything that has come below that bar appears like a win.
Trump 'always has a plan, but it's not always obvious,' Treasury Secretary Scott Bessent told Bloomberg Television Wednesday morning.
For example, Trump had threatened Japan with a 25% tariff earlier this month when negotiations stalled. But late Tuesday, a trade agreement between the two nations was announced, including a tariff rate of 15% on Japanese goods imported into the United States. US markets got a healthy bounce higher Wednesday. Japan's markets took off like a rocket.
But 15% is more than the 10% that US importers have been paying for Japanese exports since April, when Trump first rolled out his so-called reciprocal tariffs on trading partners — and much more than what the Japanese were paying before Trump took office.
The victory, some analysts say, is the certainty that the trade agreements provide investors, consumers and businesses.
'The positive is that hopefully we're coming to the end of all the tariff cloudiness in terms of what the ultimate rates will be so businesses can plan around them,' said Peter Boockvar, chief investment officer of One Point BFG Wealth Partners, in a note to investors Wednesday morning. Boockvar, however, acknowledged this is 'a bizarre political and economic theory world we now live in.'
Trump is winning by moving the goal posts, noted Ed Mills, Washington policy analyst at Raymond James.
'Compared to what he threatened, it looks like he caved. Compared to what was previous, it's a significant tariff,' Mills told CNN. 'Investors just want to know a number. They almost don't care what it is, they just want the uncertainty to go away.'
Or as TD Securities Analyst Chris Krueger put it: Trump has shifted the Overton window – the range of outcomes that the public is willing to accept.
'(A) 15% tariff on the US's fifth-largest trading partner? Better than 25%,' Kruger said in a note to investors.
The trade war is far from complete, and the long-term implications of Trump's decisions could yet be damaging — economically and politically. But, in the near term, Trump appears to be winning.
That tide began to turn on April 9, when Trump paused for 90 days his 'Liberation Day' tariffs announced a week earlier that had sent the stock market plunging and briefly entering bear market territory. The bond market had also begun to show signs that it might break — until Treasury Secretary Scott Bessent guided Trump away from his harshest tariff levels.
Markets have rallied from that point on, and consumer sentiment — which sank near all-time lows — has rebounded.
Several other events helped soothe fears since the tariff pause: On April 12, the Trump administration excluded smartphones and electronics from the historically high tariffs it had placed on China, leading to another market bounce-back. In mid-May, the Trump administration reached an agreement with China to lower tariffs dramatically and open some markets that both sides had closed off as tensions rose. Tariffs on Chinese imports fell to 35% from 145%, which had been a historic level that served as an effective shipping embargo.
A trade agreement with the UK, a reinforced China agreement and a slew of announcements Tuesday on trade, from Indonesia to the Philippines and then Japan also provided much-needed doses of certainty.
Trump has also used tariffs, deals and threats as a way to give US industry a boost. He has fought hard against so-called non-tariff barriers, including digital services taxes, which the administration believes put undue pressure on the American tech industry.
For example, late last month, Trump railed against Canada for imposing a tax on online companies and threatened to end trade talks. Trump also said he would set a new tariff for Canada by the end of this week. Days later, Canada backed down and dropped the tax.
Trump worked to include opening US exports to foreign countries as part of his trade agreements, too, including beef to the United Kingdom, rice and cars to Japan, and various items to Vietnam, Indonesia and the Philippines.
However, it's not clear Trump can claim victory on trade just yet. At least dozens of trading partners are expected to get higher tariffs set at the end of next week, and Trump has floated raising the 10% universal tariff he imposed on April 2 to 15% or 20%. The European Union, another major US trading partner, has found a trade agreement elusive, and tariffs could surge on both sides of the Atlantic as a result.
The US and global economies have largely been able to withstand Trump's tariffs over the past several months, but it's not clear that they can if those rates go higher — particularly as US importers work through warehoused inventories of goods that were brought in to the United States before tariffs were put in place.
'It remains too early to fully understand the longer-term implications, especially with another round of new tariff developments expected in August,' Lynn Song, ING's chief economist for Greater China, said in a note to clients Wednesday morning.
The Trump administration knows this. And the better-than-expected deal with Japan suggests the White House may be reluctant to push important trading partners too hard, recognizing that the economic pain from high tariffs and potential tit-for-tat retaliation could prove unacceptable to businesses, investors and the public, noted Ulrike Hoffmann-Burchardi, global head of equities for UBS Global Wealth Management.
Inflation is starting to creep higher. Business sentiment is improving, but earnings and growth expectations remain pretty stagnant. Consumer sentiment is on the upswing but still comparatively low to where it was before Trump started putting tariffs in place. The job market is showing some cracks.
As a result, the US dollar continues to sink sharply, in a sign of concern about potential US economic weakness to come. US and Japanese bonds sold off Wednesday, too.
That's the market's way of waying the certainty of the present could quickly turn into more tumult in the future.
CNN's Matt Egan contributed to this report.
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