APRIL 10, 2025
President Trump said he would pause most of his higher tariffs for 90 days. – Chris Kleponis – Pool via CNP/Zuma Press
Relief spread around the world on Thursday after President Trump suspended enforcement of some of his global tariffs, but the U-turn raised the question of whether big concessions on trade need to be made to mollify an American leader who had been humbled by the market.
Some economists said the swift climbdown after the market convulsions of the past few days provided world leaders with valuable information about Trump’s pain threshold, which could lead them to take a tougher stance when negotiations start in earnest.
“Everyone will likely conclude that [Trump’s] credibility as a negotiator has diminished,” said Moritz Schularick, head of the Kiel Institute for the World Economy, a think tank. “Next time, people will believe him even less and will consider at what point he might buckle again. It certainly hasn’t become easier for the U.S. to negotiate.”
French Finance Minister Éric Lombard struck a defiant note on Thursday, saying that tariffs should remain at a very low level and that there was little room for negotiations on non-tariff barriers—rules such as safety norms that put limits on what can be imported—since many are the results of democratic decisions.
Asian markets outside China cheered news of the pause, with Japan’s Nikkei closing up more than 9%. In Europe, the German DAX index shot up more than 8% at the opening before ending the day up 5.1%. The French CAC 40 and the British blue-chip FTSE 100 closed up 4.4% and 3.4%, respectively.
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.
Japanese stocks rebounded after the partial suspension of the U.S. tariffs. – franck robichon/Shutterstock
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.
“The internal tensions, the divisions within the administration, all this was laid out for all to see,” said Laura von Daniels, director of the Americas Division at the German Institute for International and Security Affairs, adding that this additional information would improve other countries’ negotiating position.
Friedrich Merz, the conservative politician in line to become Germany’s next chancellor, in a television interview late Wednesday said Trump’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.”
Government borrowing costs, which also surged 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’s executive body, which governs trade policy for the entirety of the bloc, said Thursday that it would suspend retaliatory tariffs against the U.S. for 90 days. The EU had said before Trump announced his pause that it would hit back 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.
“We want to give negotiations a chance,” European Commission President Ursula von der Leyen said in announcing the EU’s pause, adding that the tariffs would kick in if talks aren’t satisfactory. The EU is continuing its preparatory work on possible further retaliatory measures and all options remain on the table, she said.
European Commission President Ursula von der Leyen welcomed the 90-day pause. – Omar Havana/AP
The pause and Trump’s refocusing on his conflict with China had bought the EU valuable time to organize its response, said von Daniels. “The Europeans got lucky,” she added, saying the bloc hadn’t moved slowly by design but because coordinating a response with 27 member states was inherently slow, whereas the statutes Trump had invoked to launch his trade war allowed him to turn on a dime.
China, which has matched the U.S. tariffs blow by blow, was left out of the 90-day pause. The White House said Thursday that the tariffs imposed on China by Trump in his second term add up to 145%.
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 in an interview on Thursday that the bloc was looking to increase purchases of U.S. natural gas.
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 reorient 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.”
A key question facing officials who are brainstorming their strategy for the next three months is how much Trump would be constrained by fears of another market upset looking forward, or whether he could go the brink again to secure better trade terms for his country.
Aides to the president have said publicly that his volte face was planned all along. But the bond market’s gyrations and a parade of executives, lobbyists and foreign leaders warning him about the consequences played a key role in persuading him to reconsider.
“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 normalize 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.
Courtesy/Source: WSJ
