At first glance, determining President Trump’s endgame on tariffs seems impossible, especially in light of recent court cases and his ever changing threats. However, one number keeps being repeated — a 10 percent global tariff — and this indeed may be his final landing place. But such an outcome will neither spare Americans from inflation nor inspire the return of manufacturing to within our borders.
On Apr. 2, Trump announced its imposition while reserving higher rates for countries whose tariffs were deemed “nonreciprocal or discriminatory.” However, he backed off shortly thereafter, suspending most higher tariffs for 90 days in response to turbulence in international bond markets while maintaining the 10 percent tariff worldwide.
What happens when this 90 day suspension expires on July 8 is anyone’s guess, but Commerce Secretary Howard Lutnick on May 2 affirmed that 10 percent should be considered the “baseline” for all future deals. And the 10 percent rate has figured in two recent negotiations, giving substance to Lutnick’s comments.
On May 8, a preliminary agreement was reached with Great Britain calling for reciprocal tariffs at the 10 percent rate. Also, an unspecified “alternative arrangement” will be created to the 25 percent tariffs which the U.S. has imposed on steel and aluminum worldwide, purportedly on national security grounds, a concession which comes as Britain’s last big steel plant struggles to survive.
And the magic number of 10 percent has also reappeared in Trump’s recent agreement with China. From Feb. 2 onward, tariffs against China rose by steps to 145 percent, in effect strangling all trade. Of this, 20 percent was asserted to be retaliation for flows of the illegal drug fentanyl, but while the rest were imposed on commercial grounds.
However, on May 12, the two countries reached an agreement under which, while the Fentanyl-related tariff was maintained, at least for the time being, both sides would drop all other tariffs to 10 percent for a 90-day period while further negotiations continued.
If tariffs settle at 10 percent, Trump is likely to be frustrated in achieving his stated goal of provoking a renaissance in domestic manufacturing. At that level we are more likely to see some of their cost absorbed by foreign producers, and some by American consumers. While price increases will be painful, they are unlikely to be high enough for companies to justify the expensive investments in new plants to create the boom that Trump heralds. We should not expect to see textile mills and television assembly lines re-opening any time soon.
Why then do Trump and his negotiators keep coming back to 10 percent? There is no evidence that this is based on any sophisticated economic analysis. Most likely, it just represents their back of the envelope calculation of how far they can go in increasing tariffs without inciting inflation to a point which will be politically unsustainable.
After first asserting that American consumers would not see higher prices from tariffs, administration figures such as Treasury Secretary Scott Bessent are now admitting there will be some pain, while Trump himself is trying to jawbone big retailers to absorb all of the higher costs themselves. They may see 10 percent tariffs as being low enough to at least prevent runaway inflation even if it trends upward.
They may also be hoping that the bond market by now has absorbed the shock of Trump’s tariff plans and we will not see further increases in the amount of interest the U.S. government (and eventually private individuals and businesses) will pay on their borrowing. However, the recent decision by credit rating firm Moody’s to end the AAA rating it historically gave U.S. bonds is hardly going to calm already jittery markets.
So we may see the worst of both worlds — tariffs high enough to provoke greater inflation for consumers and higher borrowing rates both for the debt-ridden U.S. government and for businesses and individuals but not high enough to lead to major new investment in domestic manufacturing. Thus, the 10 percent solution may prove to be no solution at all.
Richard M. Sanders is a Senior Fellow at the Center for the National Interest. He is a former member of the Senior Foreign Service of the U.S. Department of State where for much of his career he concentrated on international trade and investment issues.