In the midst of a worldwide market crash, President Trump reversed his tariff policies on most nations for 90 days on Wednesday, but he increased the tax rate on Chinese imports to 125%.
The apparent goal was to reduce the scope of the long-running trade battle between the United States and the rest of the globe to a confrontation with China. The specifics of Trump’s intentions to reduce tariffs on trade partners other than China were not immediately apparent, but the statement sent the S&P 500 stock index soaring by over 7%.
“I have authorized a 90 day PAUSE, and a substantially lowered Reciprocal Tariff during this period, of 10%, also effective immediately,” Trump wrote on Truth Social, explaining that “more than 75 Countries” had approached the U.S. government for trade talks without providing any meaningful retaliation.
The standard rate for the majority of countries that entered into force on Saturday was 10% tariff. Trump had imposed a levy of 20% on EU goods, 24% on Japanese imports, and 25% on South Korean exports, so this is a significant reduction. The earlier tariffs imposed by the United States government would still be 10% higher.
The declaration came as the world economy seemed to be openly defying Trump’s tariffs as they went into effect on Wednesday, an indication that market forces were affecting even the president of the United States.
The stock market is trembling following days of drop, business executives are predicting that his plans might trigger a recession, and some of the key trading partners of the United States have responded by imposing their own import levies.
According to White House press secretary Karoline Leavitt, Trump’s retreat was an element of a larger bargaining strategy.
In her opinion, the president “clearly failed to see what President Trump is doing here,” and she went on to say that Trump has given himself the greatest possible bargaining power. You predicted that the rest of the globe would draw nearer to China, but the reverse has happened: everyone is phoning the US, not China, because they want access to our markets.
Market tensions, however, had been mounting for weeks before to Trump’s announcement.
Worryingly, investors no longer saw U.S. government debt as a safe haven, which is especially concerning given that they often flock to Treasury notes during economic storms. The interest rate on the 10-year U.S. Treasury note increased to 4.45% due to the dropping price of government bonds. The reversal by Trump caused that pace to ease.
The markets were hoping for a trade ceasefire, according to Gennadiy Goldberg, head of U.S. rates strategy at TD Securities, who made the statement before to the announcement.
The indicators of a trade de-escalation are being sought after by markets beyond the Treasury market, he added. It will be challenging for markets to stabilize in the absence of de-escalation.
While Trump claimed to have altered his mind in light of potential discussions, chief economist John Canavan of the consulting firm Oxford Economics pointed out that Trump had already suggested that the tariffs would remain in place.
“The wording regarding potential negotiations has been quite ambiguous,” Canavan stated. “He decided to negotiate and temporarily halt operations because he was concerned about the state of the markets.”
Due to the fact that presidents are powerless to influence the economy while in office, they are either unfairly praised or condemned for the way things stand.
Trump is causing political risks, pushing the market in different directions based on his comments and social media posts, and having remarkable power over the flow of business by unilaterally implementing tariffs. It appears that 25% tariffs are still in place on automobiles, steel, and aluminum, with other goods expected to be subject to taxes in the coming weeks.
The president is not being as strategic as he was in his first term, according to Delta Air Lines CEO Ed Bastian, who made the comment on CNBC. In January, his business had predicted its greatest financial year ever, but they scrapped those plans for 2025 because of the economy.
Attempting to juggle too many tasks at once has made it impossible to make arrangements, he observed, adding that demand for air travel has decreased.
Even before Trump’s U-turn, economists were warning that the country was heading for a recession due to a domino effect of Trump’s second term policies.
“The economy will enter a recession in the current quarter due to simultaneous shocks to consumer sentiment, corporate confidence, trade, financial markets, prices, new orders, and the labor market,” stated Joe Brusuelas, chief economist at RSM.
There has been no official word on whether or not the 10% tariffs that have been put on most nations will remain in place, and Treasury Secretary Scott Bessent has previously stated that reaching tariff rate agreements with countries might take months. “Mornings with Maria” was the platform from which Bessent delivered his prediction that the economy will “be back to firing on all cylinders” in the “not too distant future.”
According to him, “the nations who want to come and sit at the table rather than escalate” have responded with a “overwhelming” amount of support. In his remarks, Bessent brought up India, South Korea, and Japan. It is worth mentioning that they may be found all around China. “Vietnam is coming today,” he announced.
The remaining steps of Trump’s tariff strategy remain unknown. He announced the impending imposition of levies on imported pharmaceuticals in a speech delivered on Tuesday night.