After Tariff climbdown, world asks: Is it method or madness?

Relief spread around the world on Thursday after President Trump suspended enforcement of some of his global tariffs, but the U-turn left governments pondering how to approach a U.S. that has become nearly impossible to predict.

Deciphering the reasons for the swift climbdown and how much it was premeditated or imposed by the market convulsions of the past few days could be key in determining how world leaders approach the White House in the coming negotiations.

Asian markets outside China cheered news of the pause, with Japan’s Nikkei closed up by more than 9%. In Europe, the German DAX index shot up more than 8% at the opening before paring back some of its gains. The French CAC 40 and the British blue-chip FTSE 100 were up 4.9% and 3.9%, respectively by midday local time.

The rally mirrored powerful gains in the U.S. late Wednesday after Trump said he would pause most of his higher, so-called reciprocal tariffs for 90 days while keeping a baseline duty of 10% in place for virtually all imports. The S&P 500 closed 9.5% higher—its best day since October 2008—after posting steep losses earlier in the week, while the tech-heavy Nasdaq ended up more than 12%.

After slapping import levies on specific sectors and regions, Trump unveiled global tariffs—some of them punishingly high—on almost all countries on April 2, which he dubbed “liberation day." The move caused havoc on global markets, not just pushing down stock prices but also sparking a selloff in U.S. treasuries in a development that surprised and worried analysts.

Government borrowing costs, which also surged violently outside the U.S., retreated late Wednesday and into Thursday, but they remained elevated on concerns that the levies will remain in effect and lead to higher inflation.

Countries and regions that had declined to escalate and either held their fire, postponed their reaction or announced only moderate countermeasures to the tariffs, saw their cautious approach vindicated after the U.S. appeared to blink.

“The European Union remains committed to constructive negotiations with the United States, with the goal of achieving frictionless and mutually beneficial trade," European Commission President Ursula von der Leyen said, calling the 90-day pause an important step toward stabilizing the global economy.

China, which has matched the U.S. tariffs blow by blow, was left out of the 90-day pause. Instead, Trump wrote on Truth Social that he had raised the tariff imposed on the country to 125%.

The EU, which governs trade policy for the entirety of the bloc, said before Trump announced the pause that it would retaliate against U.S. steel and aluminum tariffs with duties on about 21 billion euros worth of American products, equivalent to around $23 billion. But it had yet to respond to the across-the-board 20% tariffs imposed by Trump last week on most goods from the bloc, or to Trump’s 25% automotive tariffs announced earlier.

A commission spokesman said the bloc would “take the necessary time" to assess the situation and consult before determining its next steps, leaving open whether its retaliation to the steel tariffs would kick in as planned on April 15.

The EU has offered the U.S. to mutually abolish all tariffs on industrial goods, but Trump rejected the proposal, saying Europe should also buy $350 billion worth of U.S. energy. Dan Jørgensen, the EU’s energy commissioner, told the Financial Times on Thursday that the bloc was looking to increase purchases of U.S. natural gas.

The U.S. climbdown was “a direct consequence of the Europeans’ united approach," said Friedrich Merz, who is in line to become Germany’s next chancellor, late Wednesday. “We are ready to talk, but we are also ready to defend our interests. That’s the right approach."

However, Merz said the president’s unpredictability had caused “maximum uncertainty in the U.S. Trump is now facing massive criticism in his own ranks and from business. That’s why we need to be all the more reliable, clearer and better at the European level."

Economists stressed that a high degree of uncertainty remained despite the 90-day pause, which would negatively affect investment, growth and inflation expectations going forward.

“Bond market discipline once again has shown itself to be a powerful tool for governments to re-orient their approach," Nichola James, managing director of Global Sovereign Ratings at credit rating agency Morningstar DBRS, said in a note on Thursday. “What we are looking at now though is not an abandonment of fundamental U.S. policy, but an alternative pathway to achieve it, and in this environment, damaging uncertainty for companies continues."

One question facing officials who are brainstorming their strategy for the next three months is whether the tariff U-turn is a sign that Trump was cowed by the powerful market upset—a weakness they might exploit in the coming negotiations. Or was the U.S. president’s willingness to court a full-blown financial crisis evidence he would go right to the brink to secure better trade terms for his country.

“Our working assumption now will be that, cowed by the market response, Trump will repeatedly extend the ‘pause’ meaning that this will end up looking a lot like the 10% universal tariff that he campaigned on," Paul Ashworth, chief North America economist at Capital Economics, wrote in a Wednesday note. “In return, other countries will offer minor concessions on their own tariffs and trade practices."

Whether the events of the past week showed method or madness, countries that were singled out for some of Trump’s highest tariffs seized on the pause as an opportunity to rush into negotiations about a settlement that would lift the threat of levies permanently.

Vietnam’s deputy prime minister was already in Washington on Wednesday to meet the U.S. trade representative and members of Congress when news of the climbdown dropped. The country, which has become a base for global manufacturers seeking a cheap alternative to China to produce their goods, was hit with a 46% tariff last week but will now face a 10% levy like most other countries. Vietnam’s VN stock exchange index closed up nearly 7% on Thursday.

South Africa, the continent’s most advanced economy, said it was seeking more talks with the U.S. following the tariff pause. “Our team is due to have an interface with the U.S. embassy officials," Trade and Industry Minister Parks Tau told a local radio station in Johannesburg. “We will seek to engage with them in order to normalise trade once again."

Trump had imposed a 31% tariff on U.S. imports from South Africa. The U.S. is South Africa’s largest trading partner after China.

While they talk to the U.S., governments and businesses are likely to use the pause to strengthen their defenses should the trade war flare up again after the pause expires.

“Europe continues to focus on diversifying its trade partnerships, engaging with countries that account for 87% of global trade," von der Leyen said in her statement, adding that the bloc would also work to lift remaining obstacles to trade within its own market.

Australia would look to strengthen trade ties to the EU, the U.K. and India, Deputy Prime Minister Richard Marles told Sky News. But he rejected a call from the Chinese ambassador for Australia to link up with China against the U.S. “We won’t hold hands with China," he said.

Write to Bertrand Benoitat bertrand.benoit@wsj.com and Kim Mackrael at kim.mackrael@wsj.com