In the midst of a global market upheaval, President Donald Trump on Wednesday unexpectedly decided to pause tariffs on most nations for 90 days. This move came amid a significant escalation of tariffs on Chinese imports, which were raised to 125%. The decision appears to refocus the trade tensions primarily on the conflict between the U.S. and China, narrowing what was an extensive trade war with many countries.
Following the announcement, the S&P 500 stock index soared by 9.5%, reflecting a temporary relief in the markets. However, the tariff issue is far from concluded as the administration gears up for negotiations on a country-by-country basis. During this pause, affected countries will face a reduced tariff rate of 10%.
Intense market volatility prompted Trump to reconsider his tariff strategy, despite assurances from some administration officials that the revision was a part of the initial plan. Meanwhile, stock and bond sell-offs caused worry among voters witnessing their savings shrink and businesses warning of potentially dire economic impacts.
The global economy seemingly rebelled against the tariffs as they came into force, highlighting Trump’s vulnerability to market pressures. By early afternoon, Trump announced via Truth Social that the U.S. had received requests for trade talks from over 75 countries, prompting him to authorize a temporary pause and reduction in reciprocal tariffs to 10%.
Trump clarified the decision was taken because the stock market downturn had made people anxious. Although he expressed optimism about reaching deals, he acknowledged that “nothing’s over yet.” He was keenly aware of the bond market’s fluctuations, noting that falling bond prices and rising interest rates reflected a lack of investor confidence in his tariff strategy.
Despite the recent reversal, Trump claimed the tariff pause had been in consideration for days, though it ultimately materialized that morning. He suggested that negotiation tactics often appear unplanned until they are executed. The new 10% tariff rate is lower than previous rates imposed on entities like the European Union and Japan.
Canada and Mexico remain subject to tariffs of up to 25%, an effort attributed to combatting fentanyl smuggling. Treasury Secretary Scott Bessent stated that upcoming negotiations would be tailored to each country, and that the negotiations were prompted more by diplomatic outreach than market turmoil—a claim Trump later contradicted.
Bessent also shared that Trump had devised this strategy after discussions on Sunday, framing China’s current position as the result of U.S. pressure. Commerce Secretary Howard Lutnick contradicted Trumps’ previous account, insisting that global trade dynamics, rather than market pressures, influenced the decision.
As top U.S. trading partners retaliated with their tariffs and executives worried about an impending recession, market instability loomed following Trump’s policy shifts. White House press secretary Karoline Leavitt characterized the tariff reversal as a strategic element of Trump’s negotiation approach.
Ngozi Okonjo-Iweala, head of the World Trade Organization, warned that the trade war could significantly harm global economic prospects and potentially divide global trade along geopolitical lines.
Market uncertainty had intensified as Trump alternated between firm stances and hints at potential negotiations regarding the tariffs. Investors, typically seeking the safety of Treasury notes during economic instability, had begun pulling back, causing a rise in the interest rate on the U.S. Treasury note, although this rate eased following Trump’s announcement.
Financial experts like Gennadiy Goldberg expressed that markets were keen on a truce in trade disputes, suggesting that stability would be challenging without de-escalation. John Canavan echoed these sentiments, stating that Trump’s pivot towards negotiation represented recognition of the need for a strategic pause.
Investor Bill Ackman, a known Trump supporter, pointed out the negative market indicators preceding the policy shift. Ackman, who advocated for a 90-day tariff pause, later praised Trump for enacting what he viewed as a strategic masterstroke.
Presidents frequently receive undue credit or blame for economic conditions, although they are often at the mercy of broader financial and geopolitical trends. However, Trump’s unilateral tariff policies have wielded significant influence over commerce, carrying political risks and impacting market directions based on his statements and social media activity.
Despite the temporary tariff reprieve, concerns over future trade tensions persist as additional tariffs on products like pharmaceuticals loom. Business leaders, such as Delta Air Lines CEO Ed Bastian, criticized the administration’s approach, citing the unpredictability it introduced into financial planning.
Economic forecasters had warned that Trump’s term had brought negative impacts that risk a downturn. Expert Joe Brusuelas predicted a recession stemming from simultaneous economic shocks affecting confidence, trade, and employment.
Bessent indicated months may be needed to finalize new trade agreements, but expressed confidence that economic momentum would return shortly, driven in part by countries eager to negotiate rather than escalate tensions. Mentioning Japan and South Korea, Bessent underscored a major diplomatic shift surrounding China, with Vietnam poised for discussions.