U.S. President Donald Trump on Wednesday announced a 90-day suspension for most countries on the ‘reciprocal’ tariffs he had imposed last week, with a notable exception for China, whose levy was increased to 125% over its retaliatory measures and lack of cooperation.
However, while excess tariffs have been paused, a flat tariff rate of 10% would continue to apply on all countries even during the pause. Defending the abrupt reversal, Trump said it would provide an opportunity to negotiate more favorable trade agreements, adding over 75 countries had approached the U.S. for trade negotiations. He claimed the move would also motivate China to come to the table.
The escalation with China has prompted to retaliate with 84% duties on U.S. imports and new restrictions on 18 American firms. The tit-for-tat exchange has intensified concerns over a full-blown trade war between the world’s two largest economies.
While Trump claimed the move was primarily motivated by a need to secure more favorable trade deals, analysts suggest it was likely the result of turmoil in global markets. Following the initial announcement of sweeping tariffs, U.S. assets experienced significant declines, with the Nasdaq Composite losing 1,600 points on April 3, marking the worst sell-off since the COVID-19 pandemic. The bond market also showed signs of distress, with benchmark 10-year Treasury yields rising sharply.
Seemingly validating this view, the market responded overwhelmingly positive to the latest decision. The S&P 500 surged 9.5%, its largest single-day gain since 2008, while the Nasdaq jumped 12.2%, marking its biggest rally since Jan. 3, 2001. European and Asian stock indexes also posted significant gains, reflecting a global sigh of relief.
Despite the temporary truce, uncertainties remain. The high tariff rates, particularly on Chinese goods, continue to pose risks to global trade stability. China’s implementation of retaliatory tariffs and restrictions on U.S. firms indicates that tensions are far from resolved. The World Trade Organization has warned that an ongoing tariff conflict could significantly reduce bilateral trade and adversely affect the global economic outlook.
Domestically, Trump’s approach has faced criticism for its unpredictability and potential harm to global trade stability. Lawmakers have called for a more consistent and strategic approach to trade negotiations.