It was Donald Trump who blinked first. Never forget that. China is unlikely to overlook its importance. A week after launching an all-out global trade war, the US president paused significant parts of it for 90 days. Having insisted that he would stick with the random tariffs he imposed on most trading nations, Mr Trump suddenly decreed that he would reduce most of them to 10%. It was a major humiliation.
Yet 10% is still a significant tariff to bear for nations exporting to the US. This is also only a pause until July, not a withdrawal, so the uncertainty remains. And huge tariffs still remain on China (now hiked to 145%), Canada and Mexico (both 25%), as well as on all US imports of steel, aluminium and cars (also 25%). Mr Trump is now substituting a US-world conflict with a US-China one. The two largest economies in the world – which between them have generated around half of global economic growth in the 21st century – are, in effect, no longer doing business with each other.
Even so, this was a necessary step back from the cliff edge. It was enough to trigger a temporary bounceback on stock markets around the globe, though prices slipped back on Thursday and remain much lower than at the start of April. In the week since Mr Trump’s absurd “liberation day”, more than $6tn dollars of value was wiped from stocks on the S&P 500 index. It is a shameful outcome.
Mr Trump claims he made the move because more than 75 nations had been willing to negotiate or “kiss my ass”. This is nonsense. He has got nothing out of the tariff war. He has not won. No one has negotiated. Mr Trump is making his usual efforts to claim yet another triumph. The plain truth is that he backed down because he was forced to.
That Mr Trump can retreat is good news, as far as it goes. Overall, however, the past week has been an indictment of the president, his policies, his instincts and his behaviour. The pause should on no account be seen as proof that rational business can be done with him. For one thing, this week’s mayhem may easily kick off again as July nears. The White House has merely given itself more time to make some very big calls.
Two things appear pivotal in the decision announced on Wednesday. The first was the overheating of the US bond market, subverting the established assumption that dollar bonds will always be a safe asset, and drawing the Federal Reserve to the threshold of intervention. A similar crisis doomed Liz Truss’s economic strategy in the UK in 2022, but the destructive potential of a US bond crisis is far greater. Mr Trump’s tariffs were threatening all-out recession.
The second factor was some limited elite domestic pushback. Anxious senators appeared on Fox News (which the president watches) and pressed the case for dialling down. The head of JPMorgan Chase warned about recession. So did a handful of world leaders and some Trump cabinet members in telephone calls.
These realities were a brake on Mr Trump this time. It is possible the trauma has left its mark and there will now be no repeat. But there is no case for confidence, let alone for accepting that this outcome had been schemed all along. Even Mr Trump admitted that Americans were “getting yippy”. They had every right to be. So did the markets, along with the rest of the world. Trust disappeared long ago, replaced now by uncertainty. There is no way that this is over.
