Trump’s tariff pause brings investors relief—but worries remain
Summary
Amid market panic, he backs off his most extreme “reciprocal” tariffsDONALD TRUMP has blinked. Little more than 12 hours after his radical regime of “reciprocal" tariffs took effect, he has put most of them on pause for 90 days. Mr Trump said this was in recognition of the fact that more than 75 countries had engaged with his administration in negotiations, working together to address America’s complaints about global trade. The convulsing Treasury market may also have aided his decision. Mr Trump’s announcement provided immediate relief to markets, with stocks and commodity futures surging, as the delay alleviated fears about imminent economic damage.
Since Mr Trump’s “Liberation Day" announcement on April 2nd of sky-high tariffs, everyone from investors to diplomats had settled on the profoundly unsettling conclusion that the president was dead-set on trying to remake the global trading system, heedless of the economic and financial consequences. That belief, as much as the tariffs themselves, was driving global markets into a tailspin. Businesses were beset by uncertainty. Consumer sentiment was tanking. And economists were issuing increasingly dire forecasts for a recession this year. With his abrupt reversal, Mr Trump has revealed that he is not in fact completely impervious to the fallout from his trade policies.
Nonetheless, the pause in tariffs is far from a full ceasefire. Three worries stand out. First, the president made one giant exception to his benevolence, vowing that he would raise tariffs on Chinese products to 125%, up from 104% a dozen hours earlier, which itself was up from his announcement of 34% a week ago. The special punishment stemmed from the Chinese government’s temerity to go tit-for-tat in retaliating against Mr Trump’s tariffs. China had shown a “lack of respect" to the world’s markets, he said on his social-media platform.
Second, Mr Trump’s pause only applied to “reciprocal" tariffs, the extra levies imposed on countries that have high bilateral surpluses in their trade with America. Left in place is the baseline of a 10% universal tariff on all imports bar a few products. Some exceptions, notably cars, face a higher tariff of 25%, announced last month. Others, including pharmaceutical products and semiconductors, could soon be hit with their own tariffs. The result is that, even while pulling the world back from the brink of a cataclysmic trade war, Mr Trump has still, in the space of two months, raised America’s average tariff rate to its highest in nearly a century. The country’s average effective tariff rate has gone from roughly 3% to about 20% during that time.
A final worry is that Mr Trump has promised only a delay, not a full suspension of his “reciprocal" plan. Judging by Mr Trump’s on-again, off-again approach to tariffs on Canada and Mexico, there is reason to think he will revive his threat of higher tariffs before the 90 days are up. The next time round, investors are likely to treat his hawkish rhetoric with more scepticism. But if that means that market reactions are relatively muted, Mr Trump will only have more leeway to press on.
