Magical Thinking: How Corporate America Failed To Predict The Coming Chaos

(MENAFN- PRovoke) After discussions with a dozen senior public affairs and corporate communications executives, it is clear that CEOs were genuinely shocked at the size and scale of the Trump tariffs. We discussed the reasons why, and there are our key takeaways:

• CEOs failed to prepare for the Trump tariffs, despite all the signals, with most of them believing he would not follow through
• While tariffs of 100% or more were clearly signaled during the campaign, CEOs were more focused on tax cuts and deregulation
• CEOs were frustrated at their lack of access under Biden, and saw Trump's willingness to meet with them personally as a good sign
• Many observers, including business leaders and Washington insiders, assumed the second Trump administration would resemble the first
• In private meetings with Trump, many CEOs were convinced that they would be able to carve out exceptions for their sectors or their companies even if tariffs did come
• The future is more difficult to predict, because it is not clear whether Trump wants permanent tariffs (in which case US companies should invest in domestic production) or negotiated deals (in which case the old supply chains will be reestablished).

“This was always the most likely scenario,” says one Washington, DC, public affairs professional, who-like everyone else I spoke to for this article-asked not to be identified by name.“There was no secret about Trump's tariffs plan. It was in Project 2025, he talked about it constantly at his rallies, both Biden and Harris talked about it on the campaign trail. Anyone who says they didn't see these tariffs coming is either lying or incompetent.”

And yet many corporate CEOs have told reporters that the tariffs President Trump imposed on April 2-ironically designated as“liberation day” by the White House-came as a shock. Wall Street certainly reacted as if it had failed to anticipate the severity of the tariffs imposed. And many of the communications and public affairs professionals I spoke with for this article acknowledged that they had not predicted the scope of the new trade restrictions.

I must admit, I too was surprised. Not by the tariffs, which were signaled well in advance, as was their size and scope. Nor by the somewhat bizarre calculations used to calculate each country's tariffs, since sophisticated economic thinking-or even basic math-seems far beyond the capabilities of this administration. I was surprised by the surprise. How did companies not see this coming?

Lest this smacks of 20:20 hindsight, I should point to an article I wrote after the 2024 World Economic Forum, where CEOs had expressed a desire for stability and predictability as the world prepared for a year of elections. If they were sincere, I suggested, the choice between a centrist, institutionalist Democrat (at the time Joe Biden, though the description applies as well to Kamala Harris) and an insurrectionist Republican who craves chaos, should have been clear.

But apparently they were less interested in stability than they were in a slightly lower tax rate and the prospect of rolling back consumer, employee, and environmental protections. And so many of them chose chaos-and then claimed to be surprised when chaos inevitably ensued.

They Never Thought the Leopard Would Eat Their Faces

“Many, many of our clients met with Trump personally during the campaign,” says the head of the Washington office for one of the largest global agencies.“They met with him during the transition. I genuinely do not believe that any of them expected tariffs at the level we saw on 'Liberation Day.'”

As impossible as that sounds-we'll get to that in a minute-there's no reason to believe it's inaccurate. Stories about the shock experienced by corporate America, Wall Street, tech CEOs (who were among the closest to the Trump team) and other business leaders became their own genre in the days after tariffs began to hit.

Liz Hoffman and Rohan Goswami, reporting for Semafor , were among the first to reveal that American CEOs had been shocked by the tariffs, drawing on a particularly apt 10-year old meme to capture the corporate zeitgeist.

“The business community is having its own leopard-eating-faces moment,” said Hoffman.“The stock market has not been the curb on Trump's policy agenda that many hoped it would be, and so far they are getting a lot of the bad chaos they feared with little of the good chaos they wanted.”

The article quotes Nasdaq Private Market CEO Tom Callahan:“The chaos that is reigning right now is causing everyone to sit on their hands.” And it was just one of a slew of articles suggesting the corporate America's most experienced executives were completely blindsided by something that was completely predictable.

Even before the bulk of the tariffs were announced, with Trump targeting Canada and Mexico, corporate executives were beginning to feel a little buyers' remorse. A Financial Times article in February asked whether corporate America was“already beginning to sour” on the new administration and quoted one banker:“With hindsight we did not appreciate the nature of what the administration was going to be like.”

Around the same time, many small business owners were expressing concern about projects that were being canceled as Trump halted much of the work being done under President Biden's Inflation Reduction Act. A consultancy executive whose clients were suffering told NBC :“It is shocking to some of them who have voted for Trump to realize that this might directly impact them.”

Steven Rattner, a counselor to the Treasury Department during the Obama administration, wrote in The New York Times , describing his conversations with CEOs.“Few of us ever imagined he would go this far,” one told him.“He could well bring down the economy and himself.”

Another Financial Times story , meanwhile, focused on the reaction of Wall Street executives, some of whom had gathered for a Trump rally at a“cramped Miami Beach auditorium” in mid-February, most of whom had emerged from that session excited by the new administration's economic plans, and few of whom were concerned about the tariff talk.

“We didn't believe him. We assumed that someone in the administration that had an economic background would tell him that global tariffs were a bad idea,” one Wall street executive told the FT.“We are in for a roller-coaster ride.”

Finally, Axios reported that farmers , who were among the first to feel the impact of the tariffs, were equally nonplussed.“I think everybody was expecting that it was just a lot of talk to bring people to the table and work a few things out," one Illinois farmer told the site last month.

And even this week-after the stock markets finally recouped much of the money they lost as a result of the tariffs-CEOs were still talking about how badly they had misread the administration's intentions.“Trump has always been disruptive and we all underestimated the level of disruption-we are all just awakening to this,” a top executive at a Wall Street bank who“regularly speaks to Trump's administration' told the FT .

The Signals Were Clear

“I can't speak for my peers,” says the same DC-based public affairs executive quoted at the top of this article,“but we were telling our clients that the tariff stuff was real. We didn't know if the tariffs were going to be 20% or 50% or 100% but we told our clients they were going to be huge, and for the most part our clients just didn't want to hear it.

“It was magical thinking. They thought all the deregulation and the tax cuts were real, and the tariffs were just bluster. Because that's what they wanted to believe.”

“Magical thinking” sounds about right, because Trump had been talking about tariffs for more than a year on the campaign trail, his rhetoric growing more extreme as the campaign went on, the percentages getting larger and larger. It was one of the few issues-alongside immigration-on which he was absolutely consistent.

During his first term, Trump had embraced tariffs in a limited and even strategic way, imposing taxes on solar panels, on steel and aluminum, and triggering a trade war (it feels more like a skirmish now) with China. And so many corporate executives expected a similar approach during his second term.

But to believe that, it was necessary to ignore pretty much everything Trump and his allies said during the campaign. In October 2023, during a Fox Business interview , Trump said:“I do like the 10% [tariff] for everybody,” and then went on to muse about the fact that some companies would be hit with larger tariffs:“The problem with the 10% is that some countries are much bigger abusers than others.”

In February of 2024, when asked in another Fox Business appearance to confirm a report that he was considering a 60% tariff on imports from China, he said,“No, I would say maybe it's going to be more than that.”

By August the baseline numbers had gotten bigger:“We're going to have 10 to 20% tariffs on foreign countries that have been ripping us off for years,” he said at a rally in North Carolina .“We're going to charge them 10 to 20% to come in and take advantage of our country because that's what they've been doing for nothing, to take our jobs.”

In October, during a speech to the Detroit Economic Club , Trump started to use the language of“reciprocal tariffs,” a term that ultimately came to conflate trade deficits with tariffs-and thus led to the use of tariffs as a way to bring America's trade with individual nations into either balance or surplus.

A few days later, during an interview with Bloomberg editor-in-chief John Micklethwait hosted by the Economic Club of Chicago, Trump mentioned placing tariffs on foreign-made products as high as 100% or 200% and boasted that he could make tariffs“so high, so horrible, so obnoxious that they'll come right away.”

And at a rally in Warren, Michigan, Trump declared “tariff” to be his“favorite word” and“the most beautiful word in the dictionary.”

Indeed, there were few issues on which Trump was as consistent as he was on his desire to punish America's trading partners. And whether the size of the tariffs varied-20%, 60%, 100%, 200%-it was obvious that they were going to be of a size never before seen.

So What Went Wrong?

Despite the fact that Trump's enthusiasm for tariffs was evident from the beginning of Trump's election campaign until the end, many communications and public affairs professionals-about two-thirds of those with whom we spoke for this article-admit to being blindsided by the size and scope of that imposed on“Liberation Day.”

Even among those who expected tariffs on the scale Trump had promised-20, 60 or 100%-several assumed they would be short-lived, a shock designed to bring trading partners immediately to the table. And those who were concerned about sustained tariffs at a high level found it difficult to convince their leadership teams or their clients that Trump was serious.

“I don't think you can point to any one thing,” a New York based corporate affairs executive told me.“I think it was like a perfect storm. There was wishful thinking, there was a kind of groupthink that included a lot of Washington insiders, particularly in the political center, and there was probably a bit of over-confidence too.”

And so there are several theories about why corporate America failed to see the tariffs coming.

Theory 1: Bright, Shiny Objects

It sounds like the very definition of“magical thinking,” the assumption that all the good promises that Trump made would come true, while all the bad promises were some kind of elaborate bluff.

“I went to a big financial presentation in New York right before inauguration day,” says the president of a large corporate and public affairs firm.“There were all these bankers in the room and the conversation was driven by people in private equity and venture capital who were worried that [under Biden] there were no private deals happening, no IPOs happening.

“I think that sector of business blamed it on the Biden administration, and they were willing to overlook so many things, even tariffs if they thought they could start getting deals done again.”

Another New York-based corporate affairs professional says,“To be honest, not a lot of our clients were asking us about tariffs. They were much more focused on tax cuts and on the promise of deregulation. Any talk of tariffs was shut down pretty quickly by their enthusiasm for deregulation and lower taxes.

“They chose to believe all the good stuff and to decide all the bad stuff would not impact them.”

A financial communications expert I spoke to was even more blunt:“All of the focus was on taxes. There was a feeling that a Harris administration would almost certainly repeal the Trump tax cuts for the very rich, and most CEOs are very rich. They were a lot more interested in what might happen to their personal taxes than they were in any disruption to their supply chain.”

Theory 2: Just Like the First Time

It was not as if the first Trump administration had eschewed tariffs: it imposed what was, in many ways, the most aggressive trade regime in recent American history. But tariffs were deployed strategically, targeting specific products such as steel, or specific countries such as China.

“In their defense, they had a four-year track record to look at [from the first Trump administration],” says the corporate and public affairs firm leader quoted above.“It's not his first time in office. They had a four-year track record where, you know, he didn't really end the global economy.”

And so a lot of corporate executives thought they knew what to expect the second time around.

“The thing is, tariffs during the first Trump term were an effective strategic tool,” says one Washington public affairs agency CEO.“For the most part, the strategy worked and was good for American business. So most people expected a similar approach in the second term.

“Instead, we got this idea that if some tariffs were good, more must be better.”

At the same time, many communications and public affairs executives-and their CEOs-struggled to understand when to take Trump and his allies seriously.

“Trump says a lot of things, and a lot of them turn out to be bluster,” says the New York based corporate affairs executive.“During his first term, there were things like 'Mexico will pay for the wall,' which were just obvious nonsense, and I think people realized that they couldn't always take him seriously. The problem is figuring out when he's serious and when he's bluffing.”

The assumption that tariffs were a bluff led many companies to ignore or downplay the risk.“We were not asked a lot about tariffs at this level, which I feel most people felt was unimaginable,” says the CEO of another major public affairs firm.“Who would destroy the economy this way? We believed tariffs would be a stick for negotiations but not to the extent that they would potentially put so many small businesses out of business or create shortages or dramatically raise prices.”

The head of corporate affairs for a major global agency says she was nervous about the tariffs precisely because nobody was asking those tough questions.

“I was deeply concerned during the election, including around the debates, that nobody was talking and trade policy or tariffs," she says. "There was really no conversation. There was nobody asking him to give us more details on his policy, or asking what they would do if he was serious. He clearly signaled this, and nobody took it seriously, nobody asked the questions about how it would work in practice.”

Theory 3: Washington Groupthink

The expectation that the second Trump administration would look a lot like the first administration was reinforced by a lot of supposed cognoscenti in the Washington, DC, echo chamber.

“Washington insiders are prone to groupthink just like everybody else,” says the New York based corporate affairs executive.“So all the sensible centrists talk to the media and the media repeats what it's hearing from the sensible centrists and that's how a consensus emerges, and in this case the consensus was that it was all bluster.

“I would argue that the further you got from Washington, the more likely it was that people took it seriously, but it was hard to convince people that the DC experts might be too close to it to see it clearly.”

Inside the Beltway, there was something close to certainty that wiser heads would prevail.

Says the CEO of the major public affairs firm quoted abive:“Everyone knew that Trump would pursue tariffs but I don't believe anyone believed that it would be as draconian or broad as it ended up being because why would someone deliberately hurt so many US industries? Especially when he had people like [Treasury Secretary and former hedge fund manager Scott] Bessent in the mix who one assumed understood how this would work.”

Another Washington insider, now an independent consultant, says:“If you talked to what I used to call mainstream Republicans, many of them seemed to think Trump was bluffing about the tariffs, but if you talked to people close to him or close to Project 2025, you knew they were serious, and expected to have influence.”

Yet even those who read Project 2025 weren't overly concerned,“I don't think they thought he really cared about most of that stuff, because I don't think he really had much of an ideology in his first term,” says the corporate and public affairs firm president.“I think they thought, yes, there are Republicans that believe in that stuff, but Trump mostly just wants to have a good time and make some money and look like he's winning. In the same way, I don't think people saw DOGE coming in a serious way.”

As for what Democrats were saying, the consultant adds:“A lot of the moderates, the institutionalists, they expected something more like the first term. I don't know what the liberals and progressives were saying, because to be honest they weren't going to have any influence no matter who won, so we didn't spend a lot of time with them. I think mostly people thought they were just scaremongering.”

No matter who they spoke to, the DC public affairs executive says, CEOs“were either told that the tariffs would be in the usual range, or that this was just a negotiating tactic, or that if they were supportive of the administration they would be able to carve out an exemption for their companies or their products.

“They thought they knew the answer, so they didn't really ask the question.”

Theory 4: Trump Stroked Egos

“I think this was a moment when, you know, CEOs and tech CEOs and maybe bank CEOs in particular, they felt overly managed over the last few years since the pandemic,” says the corporate and public affairs firm president.“One of the big mistakes that the Biden administration made was that they didn't really have a senior person close to the president that was the emissary to business.

“And so CEOs didn't really feel like they knew how to call the White House. It was not an easy relationship between business and the White House at a high level. But Trump actively courts these guys.

“All of a sudden, I think the CEOs felt they didn't need to listen to their staff and their consultants. They felt like, this is my moment to solve this myself. That's what Trump likes too. He wants to talk directly to principals. He doesn't want to be managed by his staff or their staff or any lobbyists.”

Another Washington, DC, public affairs firm leader says:“I've never been in a room with Trump but most of these CEOs have, and they've listened to him promising tax cuts and deregulation and oh by the way we're going to take a hard line on trade and we're going to cut some great trade deals-and you can see how they might come away from that feeling good and feeling like they knew how it would play out.

He points to the recent visit to the White House by Bill Maher -an occasional critic of Trump's policies-who came away calling the President“gracious and measured.” The public affairs executive says:“It seems he can be very charming, very convincing, when you meet him in person, and you can see how he might have convinced these people that he really was going to be able to cut these deals and that he wouldn't do anything to disrupt their business.”

Theory 5: The Quid Pro Quo

There is, among some professionals, a more cynical take on the meetings between corporate executives and the Trump administration: that many of the CEOs who visited the White House came away believing that they could buy their way out of any potential difficulty.

“I think a lot of CEOs came away from those conversations with an understanding that those meetings were a negotiation,” says one senior corporate communications executive in the tech sector.“I think there was a feeling that if they announced that they were going to invest in the US, shift to more domestic manufacturing, create more jobs in America, they could get a pass.”

Says the corporate and public affairs firm leader quoted above:“He spent a lot of time courting business in Mar-a-Lago over the last six months or so. Most major Fortune 100 CEOs have met with him. I think two things: one, they thought they could buy their way out rather cheaply, mostly by appearing to kiss the ring, or second, they thought that if they just hired a Republican or Trumpworld lobbyist then their problems would be solved.”

And so it was many companies announced increased investment in the US, claims that the White House enthusiastically promoted . The fact that many of the announcements involved longstanding plans repurposed as“America first” investments did not particularly matter.

“The White House was looking for PR wins, and smart companies were able to deliver,” says the head of the Washington office for a major global agency.“And in many cases, they were rewarded. You could see it when Apple and other tech companies talked about building new factories, and the tariffs on smartphone parts went away or when the car companies were able to get tariffs reduced .”.

Even more cynical is the public affairs professional whose quote kicked off this story:“I think there was a pretty explicit quid pro quo. Trump created all these ways in which companies could curry favor: they could donate to his inauguration, they could buy their way into events at Mar-a-Lago, a lot of overseas business seem to have invested in his cryptocurrency or in Trump Media [and Technology Group].

“This is the most openly corrupt administration in history, and CEOs know it.”

Where Do We Go From here?

“The scary thing is that predicting the tariffs was the easy part,” says the same Washington-based public affairs professional.“The signals were clear, the intent was obvious.

“But I don't think anyone can predict what comes next. Suddenly, the signals are mixed. Is the plan to sign new, more favorable trade deals with all these countries? Or is it to continue collecting revenues from these tariffs in the crazy hope that tariffs can replace more conventional taxes? Different people in the administration seem to be telling different stories. And the story Trump tells varies on a daily basis.”

So while markets have regained most of the money they lost in the wake of“liberation day”-often dipping or soaring based on speculation about a loosening of the tariff regime-there are multiple signals that risk continues and that some measure of magical thinking persists.

Harley Bassman, managing partner at Simplify Asset Management, wrote in Barron's last week that:“The Cboe Volatility Index, or VIX, screamed above 50, well over the eight-year post–global financial crisis average of 15.3. Similarly, the MOVE Index, which measures the implied volatility of one-month options on US Treasuries, now ranges between 100 to 140, well above its prior average of 65.9.

“I would propose that these jumps in the MOVE and the VIX aren't short-term blips that will quickly resolve. Rather, they may be permanent, or at least they will not dissipate until the end of the Trump presidency in 2029.”

Similarly, Dan Ivascyn, chief investment officer at Pimco, told last week's Milken Institute Global Conference that investors are still underestimating Donald Trump's resolve to restore steep tariffs and warned that recession risks were now the highest in years-after the previously booming US economy contracted by 0.3% in the first quarter of 2025.

At the same conference, Citadel founder and CEO Ken Griffin-a vocal supporter of the President-warned that the tariff exemptions signal that the U.S. has“already-regretfully-unleashed an era of crony capitalism.... I thought that would play out over the course of years. It's terrifying to watch this play out over the course of weeks.”

Meanwhile, traffic at American ports is beginning to slow dramatically, with shipping volume in Los Angeles down by a third (“a precipitous drop in volume” according to the executive director of the Port of Los Angeles) while Seattle port commissioner Ryan Calins told reporters last week that“I'm looking out at the Port of Seattle right now, and we currently have no container ships at berth." On Friday, it was reported that not a single cargo vessel had left China with goods destined for West Coast ports in the past 12 hours.

And partly as a result of tariffs and partly due to random detentions at the border , travel to the US from many international markets is in free fall . Data from US Customs & Border Protection shows visitors coming across the northern border from Canada down 18% for March. Visitors from Western Europe declined by as much as 29% in March, according to the National Travel & Tourism Office. That will exacerbate other worrying economic news.

Beyond the travel and tourism category, American brands are also facing boycotts in international markets. After Trump threatened to invade their territories, both Canadian and Danish consumers have been targeting US companies. And the boycotts are spreading across Europe, where the European Central Bank says ,“The newly imposed US trade tariffs on European products are causing European consumers to think twice about what's in their shopping cart. Consumers are very willing to actively move away from US products and services,” and skepticism remains about whether Trump will actually respect the agreement.

Some capricious announcements over the past week have done nothing to calm nerves, only increasing the level of uncertainty: first, Trump announced plans to place tariffs on“foreign-made” movies , then he suggested lowering tariffs on China ahead of negotiations in coming weeks-a move that might have been reassuring if it appeared to be part of a genuine strategy rather than just another example of poor impulse control.

So it's no surprise that markets remain skittish.

“Given our state of ignorance and all we don't know, [investing now] is like betting on the outcome of the Super Bowl when you don't know which teams are playing or who any of their players are,” Howard Marks, the co-founder of Oaktree Capital, told the FT . That same uncertainty makes it difficult for companies to make investment decisions, from building new manufacturing capacity in the US (suicidal if tariffs are reduced at some point in the future) to M&A activity-which many had expected to flourish.

Business leaders, meanwhile, expressed their concerns in a Harris Poll survey, conducted with the Leadership Now Project. A massive 84% of senior business leaders express concern over the current political and legal environment's impact on their business, and 45% say recent executive orders and policies have negatively affected their business's competitiveness, while 33% report a positive impact.

“CEOs still don't know what the strategy is,” says one CCO with ties to the automotive industry.“If this is just a way of gaining more concessions, then they will be rolled back in a few months, so investing in new factories and new production domestically would be costly and ultimately futile. But if he's serious, then we face maybe three or four years of shortages while we create capacity domestically.

“Neither scenario is great for American manufacturing, but not knowing makes it difficult to make any kind of decision.”

And internationally, public affairs and communications professionals are predicting a significant realignment of the global trade environment, even if the worst of the tariffs are eventually rescinded.

“Say what you like about the Chinese, but at least they are rational actors,” says one EU public affairs professional.“They are going to act out of self-interest, and they're going to cheat a little, but at the end of the day they are rational, which means they are predictable, and that's the most important thing in terms of being able to lay out a strategy for the future.”

And in London, a corporate affairs consultant adds:“There's a lot of optimism in government that the UK can make a deal, but the concern doesn't end there, because the pattern has been that Trump can make a deal one day, and then come back for more the next day. So companies are still going to be left guessing: will this hold, are we all going to be back here again in a few months?”

The UK did indeed strike a deal just a few days later, but 10% tariffs remain in place-that level is apparently the new normal for“good” countries-and the deal mostly involved the UK buying planes from troubled US aviation giant Boeing, and the US allowing British car imports. The latter aspect of the deal angered US automakers, who expressed alarm that“the administration prioritized the UK ahead of our North American partners.”

In the wake of the deal, a Politico poll found less than one-third of respondents in the UK and just 44% of Americans said they believed President Trump would abide by it. Nearly half of Americans, including 25% of his own voters, said Trump's unpredictability is the biggest barrier to negotiations.

Now chaos appears to be the defining aspect of the immediate future, the greatest threat to economic stability, and the most obvious reason corporate and public affairs professionals-in the US and internationally-no longer feel confident in predicting what comes next.

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