Why Trump's 25% Tariff Threat Might Be A Phantom Anchor – Smart Negotiation Move or Pure Bully Tactic?
January 2nd, 2025
Donald Trump's latest threat of 25% tariffs against Canada is obviously aggressive diplomacy—but it also serves as a reminder of negotiation psychology. Recent research reveals how this approach, known as "phantom anchoring," could reshape international trade deals.
The Power of Phantom Anchors in Negotiations
Picture this: You're buying a car, and the seller says, "I was planning to ask for $10,000, but I'll offer it for $8,000." That initial $10,000 figure, though immediately withdrawn, still influences your perception of the $8,000 price tag. This is phantom anchoring at work, and it's more powerful than you might think (from Bhatia and Gunia, see below).
Why Your Brain Falls for Anchoring
Anchoring shapes our decisions in surprising ways. When house hunting, an overpriced listing can unconsciously raise the amount we're willing to pay. Similarly, an unexpectedly low price might make us suspicious about hidden problems. Our brains use these initial numbers as reference points, even when they shouldn't.
Trump's Trade Strategy: More Than Meets the Eye
Trump's 25% tariff threat against Canada might be following this exact playbook. Research by Bhatia (University of Pennsylvania) and Gunia (Johns Hopkins) shows that negotiators using phantom anchors consistently achieve better deals. And Trump has the track record to make his threats credible—remember the 20% softwood lumber tariff, 25% steel tariff, and 10% aluminum tax from his first term.
The Strategic Gamble
While phantom anchoring can lead to better deals, it comes with severe risks. Negotiators using this tactic are often seen as less trustworthy and more manipulative. In Trump’s case, he is acting like a bully. At the same time, this behaviour isn’t new for Trump, and his previous tariff history makes his current threat more believable, potentially minimizing these downside.
What This Means for International Trade
Understanding phantom anchoring isn't just academic—it's crucial for anyone following international trade negotiations. As Canada responds to Trump's tariff threats, we're watching this psychological principle play out on a global stage.
About the Author: Kelly VanBuskirk, K.C., PhD, C. Arb. is a lawyer and adjunct professor with a passion for Employment Law, Trial Practice, Sport Law, and Negotiation.