Trump's Tariff Pause Redirects Trade War Focus to China, Boosts Markets

 

Trump's Tariff Pause Redirects Trade War Focus to China, Boosts Markets U.S. President Donald Trump's unexpected decision to pause most of the hefty tariffs he had recently imposed on various countries provided a much-needed boost to global stock markets on Thursday, even as he intensified the trade war with China. This reversal, which occurred less than 24 hours after steep new tariffs went into effect, followed a period of significant financial market volatility reminiscent of the early days of the COVID-19 pandemic. The turmoil in the financial markets had resulted in trillions of dollars in losses and a concerning surge in U.S. government bond yields, drawing Trump's attention. "I thought that people were jumping a little bit out of line, they were getting yippy, you know," Trump remarked to reporters, referring to the anxieties reflected in market reactions. Following the announcement of the tariff pause, U.S. stock indexes surged, with the benchmark S&P 500 closing 9.5% higher. The positive momentum continued into Asian markets, where Japan's Nikkei index also jumped by 9%. However, signs emerged that this rally might be fleeting, as U.S. stock futures traded lower later in the day, and oil prices fell due to concerns that escalating trade tensions could lead to a recession.

See also:Trump Slaps 10% Tariff on Chinese Imports, Effective Immediately.

Since his return to the White House in January, Trump has consistently threatened to implement punitive measures against trading partners, only to retract some of these threats at the last moment. This erratic approach has left global leaders and business executives confused and concerned. U.S. Treasury Secretary Scott Bessent explained that the 90-day suspension of Trump's "reciprocal tariffs" was part of a larger strategy to bring other nations to the negotiating table. Trump later hinted that the market panic triggered by his prior announcements played a role in his decision-making. Despite pausing tariffs on most trading partners, Trump maintained heightened pressure on China, the world's second-largest economy and a significant source of U.S. imports. He increased tariffs on Chinese goods from 104% to 125% immediately following the pause. In response, Beijing retaliated by imposing an 84% tariff on U.S. imports, declaring its commitment to "fight to the end" in the ongoing trade conflict. China’s foreign ministry spokesperson Mao Ning reiterated the country’s unwillingness to back down, sharing a historical video of a speech by Mao Zedong during the Korean War. "We don’t back down," she stated.

While Trump expressed optimism about reaching a resolution with China, officials indicated that immediate priority would be given to negotiations with other countries such as Vietnam, Japan, and South Korea. "China wants to make a deal," Trump noted, though he acknowledged they were unsure how to proceed. Amid increasing trade tensions, China reportedly engaged in discussions with the European Union and Malaysia to enhance trade relations. Conversely, Australia denied an offer from China to collaborate in response to U.S. tariffs, with Deputy Prime Minister Richard Marles firmly stating they would not partner with China in global contests. Support from the state helped stabilize Chinese stock markets, despite the yuan hitting its weakest level since the global financial crisis. Meanwhile, Chinese sellers on Amazon faced potential price hikes for U.S. markets due to the new tariffs, and Goldman Sachs revised its GDP growth forecast for China down to 4% in 2025, citing adverse tariff impacts.

While Trump’s tariff pause on other countries may appear beneficial, a 10% blanket duty on nearly all U.S. imports will still remain in effect, along with existing duties on automobiles, steel, and aluminum. Additionally, tariffs related to fentanyl on Canadian and Mexican goods remain unchanged, as compliance with the USMCA trade agreement’s rules of origin is still in effect. Trump's tariffs had initially triggered a selling spree in the stock markets, erasing substantial wealth and causing pressure on U.S. Treasury bonds and the dollar, which are central to the global financial system. In light of the turmoil, Canada and Japan signaled their readiness to intervene to stabilize markets, a role traditionally assumed by the U.S. during economic crises.

Treasury Secretary Bessent downplayed concerns about market volatility, suggesting that Trump’s strategy had successfully positioned the U.S. for better negotiations with other countries, even implying that the tariffs were a deliberate tactic to place China in a disadvantageous position. "This was his strategy all along," Bessent told reporters. Thus, the tariffs announced by the U.S. administration, pending their precise implementation details, seem to have opened avenues for negotiation, instigating responses from leaders worldwide, including Spanish Prime Minister Pedro Sanchez, who affirmed this dynamic in a speech on Thursday.