Trump’s Surprising Tariff Pause Shifts Focus of Trade War to China

Agencies

Islamabad: President Donald Trump’s unexpected decision to pause newly imposed tariffs on several countries sparked a surge in global stock markets on Thursday, even as tensions with China escalated further.

This move came less than a day after the imposition of steep tariffs on most of the US’s trading partners, following a period of financial instability that had led to a sharp drop in global stock values and an unsettling rise in US government bond yields.

In a press conference following his announcement, Trump commented on the market’s reaction, saying, “I thought people were jumping a little bit out of line, getting yippy, you know,” referring to the unease often seen in athletes under pressure.

After the tariff pause, the US stock market saw significant gains, with the S&P 500 closing up nearly 9.5%, while Japan’s Nikkei index surged 8%.

However, the rally showed signs of fading, with U.S. stock futures trading lower. Oil prices also saw a decline, down by 1%, amidst concerns that trade tensions might lead to a global recession.

Since taking office in January, Trump had frequently threatened new tariffs but often reversed or softened those threats, causing confusion and uncertainty among global leaders and businesses. US Treasury Secretary Scott Bessent defended the pause, asserting it was part of a larger strategy to bring countries to the negotiating table.

However, Trump also hinted that the recent market volatility had influenced his decision. “You have to be flexible,” he said, signaling a shift from his earlier insistence on unchanging policies.

While Trump backtracked on tariffs for most countries, he intensified pressure on China, the world’s second-largest economy and the US’s second-largest source of imports. He increased tariffs on Chinese goods to 125%, up from 104%.

This decision was part of a broader strategy targeting China in the ongoing trade war between the two economic giants. The head of China’s largest e-commerce association warned that Chinese companies selling on Amazon might hike prices or even leave the U.S. market due to the tariffs.

In retaliation, China raised tariffs on US imports by 84%, further escalating the standoff. Beijing has pledged to “fight to the end” against US trade policies, and it has sought to strengthen trade relationships with the European Union and Malaysia.

However, Australia rebuffed China’s offer to cooperate against the tariffs, with Deputy Prime Minister Richard Marles asserting, “We are not going to be holding hands with China in respect of any contest that is going on in the world.”

Despite the mounting tensions, Chinese stocks were bolstered by expectations of government support, though its currency, the yuan, hit its weakest level since the global financial crisis.

Trump’s sudden reversal on tariffs is not without its limits. A blanket 10% tariff on most US imports will remain in place, and duties on autos, steel, and aluminum are not affected. Additionally, Canada and Mexico will still face 25% fentanyl-related tariffs unless they comply with US-Mexico-Canada Agreement (USMCA) rules.

The tariff disruptions have had a profound impact on global markets. Since Trump’s tariffs were announced, the S&P 500 has lost almost $6 trillion in market value, marking its worst four-day decline since the 1950s.

Analysts suggest that while the recent market rally may provide short-term relief, the broader economic impact will likely linger. A survey showed that three-quarters of Americans expect prices to rise in the coming months due to the tariffs.

Goldman Sachs revised its recession forecast downward to 45%, from 65%, following Trump’s tariff pause, though analysts still predict a 15% increase in the overall tariff rate.

Treasury Secretary Bessent downplayed concerns about market turmoil, emphasizing that the strategy was always about creating maximum leverage for negotiations. “This was his strategy all along,” Bessent stated, adding that Trump had likely provoked China into a more vulnerable position.

While the U.S. seeks to negotiate with more than 75 countries on trade matters, Trump also expressed optimism about the possibility of striking a deal with China. “China wants to make a deal,” he said. “They just don’t know how quite to go about it.”

Trump had been considering the tariff pause for several days before his announcement, though earlier in the week the White House dismissed reports of such a move as “fake news.” Before the tariff reversal, Trump had tried to reassure the public, posting on Truth Social, “BE COOL! Everything is going to work out well. The USA will be bigger and better than ever before!” He later added, “THIS IS A GREAT TIME TO BUY!!!”