In a dramatic policy reversal, US President Donald Trump announced a 90-day pause on the hefty tariffs he had imposed on dozens of countries just 24 hours earlier. The unexpected U-turn brought immediate relief to battered global markets whilst simultaneously intensifying trade tensions with China by hiking tariffs on Chinese imports to 125%.
The decision came after the most intense episode of financial market volatility since the early days of the Covid-19 pandemic, which saw trillions of dollars wiped from stock values worldwide. This market turmoil, particularly the unsettling surge in US government bond yields, appeared to catch the president’s attention.
Global Markets Rally on Tariff Pause
Stock markets across the globe responded with robust rallies following Trump’s announcement. The benchmark S&P 500 index closed 9.5% higher, while European markets leapt at the opening of Thursday’s session. The FTSE 100 surged 6.2%, rising 485 points to 8,166. Germany’s Dax jumped 7.8%, France’s CAC 40 climbed 6.4%, and Spain’s IBEX 35 rose 7.2%.
Asian markets similarly celebrated the reprieve, with Taiwan stocks soaring 9.2%, Japan’s Nikkei 225 up 7.2%, and South Korea’s Kospi gaining more than 5%. Australia’s ASX 200 jumped over 6%, while Hong Kong’s Hang Seng index climbed 2.69% and the Shanghai Composite rose 1.29%.
China Targeted with Increased Tariffs
Whilst offering relief to most trading partners, Trump kept the pressure firmly on China. The president immediately increased tariffs on Chinese imports to 125%, up from the 104% level implemented just a day earlier. He also signed an executive order aimed at reducing China’s influence over the global shipping industry and reviving US shipbuilding.
China’s response was defiant. “We don’t back down,” Foreign Ministry spokesperson Mao Ning posted on social media platform X. The Commerce Ministry rejected what it called “threats and blackmail” from Washington, with spokesperson He Yongqian stating China would “follow through to the end” if the US insisted on its own way.
Beijing may respond with additional countermeasures after already imposing 84% tariffs on US imports to match Trump’s earlier measures. The impact on China’s economy could be substantial, with Goldman Sachs revising down its forecast for China’s GDP growth to 4% in 2025 from a previous projection of 4.5%, citing the negative effects of tariffs.
European Leaders Cautiously Optimistic
European leaders welcomed Trump’s pause on global tariffs whilst remaining wary of the underlying uncertainty. European Commission President Ursula von der Leyen called it “an important step towards stabilising the global economy” and stressed that “clear, predictable conditions are essential for trade and supply chains to function.”
However, European Central Bank policymaker François Villeroy de Galhau described the pause as merely “less bad news than before.” He emphasised that uncertainty remained a threat to trust and growth in global markets.
Limited Scope of Tariff Relief
The reversal on tariffs is not absolute. A 10% blanket duty on almost all US imports will remain in effect, according to the White House. The announcement also does not appear to affect existing duties on automobiles, steel and aluminium.
Canada and Mexico remain subject to 25% fentanyl-related tariffs if they do not comply with the US-Mexico-Canada trade agreement’s rules of origin. This selective approach to tariff relief has created a complex trade landscape that continues to concern business leaders and economists.
Market Manipulation Concerns Emerge
The president’s abrupt policy shift triggered accusations of market manipulation. Democratic Senator Adam Schiff called for an investigation, saying: “These constant gyrations in policy provide dangerous opportunities for insider trading. Who in the administration knew about Trump’s latest tariff flip-flop ahead of time? Did anyone buy or sell stocks, and profit at the public’s expense?”
White House officials countered these concerns, claiming the reversal “was his strategy all along” and demonstrated “the art of the deal” at work. Trump himself acknowledged the influence of market reactions on his decision, telling reporters: “You have to be flexible” after previously insisting his policies would never change.
Real Economic Impact Already Felt
Despite the temporary reprieve, the impact of Trump’s trade policies is already being felt across various sectors. Since Trump’s January inauguration, shoe sales in US stores have fallen by 9.5% compared to the same period last year, according to the Footwear Distributors and Retailers of America, whose members include Nike, Adidas, Skechers, and Walmart.
Tech giant Apple reportedly chartered cargo flights to ferry 600 tonnes of iPhones (approximately 1.5 million units) to the United States from India in an effort to beat Trump’s tariffs. In Europe, Volkswagen’s first-quarter earnings fell far short of market expectations, plunging about 40%, partly due to US tariff costs.
90-Day Window Creates Strategic Opportunity
The 90-day pause creates a narrow window for countries to negotiate trade deals with the United States. Several nations, including Vietnam, Japan, South Korea, and India, have already expressed eagerness to swiftly reach agreements. Trump administration officials have indicated they will prioritise talks with these countries over China.
This strategic approach suggests Trump may be using the pause to isolate China by cultivating more favourable relationships with other trading partners. There are concerns that pressure on the global wide tariff could intensify further after the 90-day period expires.
Long-Term Uncertainty Remains
Market analysts and economists remain cautious about the long-term outlook. The temporary nature of the tariff pause means uncertainty continues to loom over global trade. Many believe Trump could reinstate or even increase tariffs once the 90-day period concludes, particularly if satisfactory trade agreements are not reached.
Some economists warn that ultimately US consumers are likely to bear the brunt of any sustained trade war, facing higher prices on everything from sportswear to wine. This consumer impact could potentially dampen economic growth and increase inflationary pressures at a time when many economies are already struggling with cost-of-living challenges.
A Pattern of Unpredictability
Since returning to the White House in January, Trump has repeatedly threatened an array of punitive measures on trading partners, only to revoke some at the last minute. This on-again, off-again approach has baffled world leaders and spooked business executives, who struggle to plan long-term investments amidst such policy volatility.
The president’s willingness to dramatically reverse course based on market reactions suggests financial stability may influence his trade policy decisions more than previously thought. However, his consistent hard line on China indicates that whatever happens after the 90-day pause, US-China trade tensions will likely remain at the centre of global economic concerns for the foreseeable future.