How Trump has shifted trade war psychology

Six months ago, the prospect of a 15% tariff on all goods from a major trading partner like Japan — vastly higher than seen in modern times — would likely have spooked financial markets and caused a wave of economic worry.Now it brings relief.Why it matters: President Trump shifted the trade war psychology. Financial markets and manufacturers alike have come to accept that double-digit tariffs are the new reality. And they've concluded that it's not so terrible, considering it could be worse.When a 25% tariff is on the table, striking a deal at 15% brings a collective sigh of relief — even though it's more than 5 times the pre-Trump levels and well above the 10% minimum discussed this spring.What they're saying: "The 15% rate in the Japan deal looks roughly like a new global tariff floor," Tobin Marcus, head of U.S. policy and politics at Wolfe Research, wrote in a note."This 15% rate looks to us like roughly the best that the EU can hope to do, and the 19-20% rates that we've seen in other Asian deals ... look like they'll be the rough settling point for countries that don't 'wow' the White House with offers like Japan did," Marcus wrote.The big picture: A substantial chunk of foreign goods will likely be subject to an import tax of at least 15% — and possibly as high as 20% — if recent deals are any indication.That far exceeds the 10% minimum rate that looked plausible just a few weeks ago. Still, it is less of a burden for countries like Japan. Without a deal, Japanese goods were set to face a 25% tariff rate as soon as next week.The intrigue: White House officials acknowledge this dynamic, suggesting that some nations got away with a lighter tariff rate than what the administration could have imposed.For instance, senior administration officials pointed out Tuesday that Indonesia will have a higher tariff than it started with on Jan. 20, but a lower one than it had on April 2, Liberation Day.The text of the U.S.-Indonesia trade agreement was released Tuesday, confirming that its American exports will be subject to 19% tariffs — down from the 32% levy threatened earlier this year. Yes, but: It's unclear what benefits the U.S. will get in exchange.Indonesia, the Philippines and Japan said they would open up their markets to U.S. exporters, yet it's unknown if foreign consumers have the appetite for our domestically produced goods.Trump said that Japan would invest a whopping $550 billion stateside, with the U.S. taking 90% of the profits. It's uncertain what shape such an investment might take.Data: Financial Modeling Prep; Chart: Axios VisualsThe financial market reaction to the Japan deal tells the story.The new tariffs might be meaningfully higher than those envisioned in the early weeks of Trump's term, but they still prompted a global stock rally and a rise in Japanese bond yields.By the numbers: The Nikkei 225 stock index rose 3.5% Wednesday on the news, with particularly strong gains among automakers.Shares of Toyota popped 14%, while Honda's stock rose over 11%.The yield on Japanese government bonds surged, with the 10-year security rising 0.09 percentage points to 1.6%.Between the lines: Investors believe that the trade deal will keep Japanese economic activity on track, providing a more stable backdrop for the country's auto and other export sectors.That, in turn, will make the Bank of Japan more comfortable raising interest rates this fall, as a major downside risk to the economy — the potential for a plunge in demand from the U.S. — looks to be off the table."The deal increases the likelihood that Japan's effective tariff rate will be lower than that of competing countries," wrote JPMorgan economist Ayako Fujita in a note. "If so, this could even be a long-term positive for Japan's manufacturing sector."The bottom line: "One of the policy themes of 2025 has been the Overton Window, which is essentially the possible range of policies that are considered acceptable and feasible by the mainstream public at a given time," wrote TD Cowen policy analyst Chris Krueger in a note."15% tariff on the U.S's fifth-largest trading partner? Better than 25%," he added.

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