In only a week, U.S. President Donald Trump has panicked global financial markets and tested global trade rules with his new sweeping tariffs, only to declare a major shift and a 90-day pause, triggering relief for Wall Street.
By declaring a trade war on most of the world, adversaries and allies alike, Trump has not only disrupted financial markets but also raised concerns among investors, bankers and ordinary citizens alike. Following the announcement of his reciprocal tariffs last week, major banks, including JPMorgan and Goldman Sachs, raised the risk of a recession to as high as 60%, with analysts also anticipating a new spike in inflation.
On top of it, the series of tariffs appeared to be testing the political and economic alliances that made much of the world stable for business after World War II.
Trump's latest round of tariffs went into full effect on Wednesday at midnight but was later postponed. Meanwhile, the U.S. president lifted tariffs on China to a staggering 125%. Another sudden shift in policy sent the stock market soaring, and the sun was shining when Trump stepped out of the Oval Office on Wednesday afternoon.
Less than two hours earlier, he had retreated from his plans to increase tariffs on many U.S. trading partners, and investors were rejoicing after bracing for a global economic meltdown.
"You've got the markets seeing your brilliance," Senator John Barrasso, a Republican from Wyoming, told the president.
Trump agreed. "Nobody's ever heard of it," he declared.
It was a typical bit of hyperbole that, in this case, was true. Even by the standards of Trump's second term, the saga that had played out over the past week left the world struggling to catch its breath.
Brink of chaos and then back
The president, of his own doing, had single-handedly pushed the global economy to the brink of chaos with new tariffs. The stock market cratered, businesses tore up their plans and foreign leaders prepared for a future without the world's wealthiest nation at the center of international trade.
And then Trump backed down.
Before that, economists for days were puzzled to see what actually happens when Trump tries to overhaul the existing economic order, doing so soon after inheriting what by many was seen as a healthy state of the world's largest economy, despite the long-term issue of high debt.
Many of the trading partners he had accused of ripping off U.S. businesses and workers were already floundering.
The administration accused other countries of erecting unfair trade barriers to keep out American exports and using underhanded tactics to promote their own. In Trump's telling, his tariffs were a long-overdue reckoning: The U.S. is the victim of an economic mugging by Europe, China, Mexico, Japan and even Canada.
Some countries indeed charge higher taxes on imports than the U.S. does. Some are accused of manipulating their currencies lower to ensure that their goods are price-competitive in international markets. At the same time, some governments lavish their industries with certain subsidies to give them an edge.
But on Wednesday, there was a shift in tone. Trump said more than 70 countries were in line to strike deals with Washington.
"Conversely, and based on the fact that more than 75 Countries have called Representatives of the U.S., including the Departments of Commerce, Treasury and the USTR, to negotiate a solution to the subjects being discussed relative to Trade, Trade Barriers, Tariffs, Currency Manipulation and Non Monetary Tariffs and that these countries have not, at my strong suggestion, retaliated in any way, shape or form against the U.S., I have authorized a 90 day PAUSE and a substantially lowered Reciprocal Tariff during this period, of 10%, also effective immediately," Trump said in a post on his Truth Social.
Damage done
However, real damage has been done. The back-and-forth over tariffs shook confidence in U.S. leadership, exposed fractures within Trump's team and rattled companies that rely on global sources for products and international customers for sales. Americans who use the stock market to save for retirement and college suffered days of angst.
The turmoil isn't seen to be over yet, either. Trump's 10% blanket tariffs initially imposed on Saturday are now applied to dozens of nations. He also jacked up tariffs to 125% on imports from China, leaving the world bracing for a showdown between the first and second largest economies.
There are also 25% tariffs on Canada and Mexico, America's largest trading partners, and 25% taxes on imported autos, steel and aluminum.
Media reports, however, suggest that the White House would look to rapidly cut deals on the paused "reciprocal" tariffs, including on manufacturing-intensive countries such as Japan, South Korea, Vietnam and Cambodia.
The announcement of tariffs dealt a blow to these markets, as many firms have set up production there due to cheaper labor.
Rivalry with China
Moreover, a particular issue concerning tariffs is how the two largest economies decide to act in the future, as heavy tariffs of 84% and 125% are, by some analysts, called even a sort of "trade embargo."
While Trump pushed to decrease trade deficits with tariffs, the data reveal that the U.S. is still the second-largest exporter in the world after China. In 2023, the U.S. exported $3.1 trillion of goods and services, far ahead of third-place Germany, at $2 trillion.
"They’ve taken so much of our wealth away from us," the president declared last week at a White House Rose Garden ceremony to celebrate the tariffs announcement earlier this month. "We're not going to let that happen. We truly can be very wealthy. We can be so much wealthier than any country."
But the U.S. is already the wealthiest major economy in the world. The International Monetary Fund (IMF) forecasted in January that the U.S. would outgrow every other major advanced economy this year.
China and India have grown faster than the U.S. over the past decade, but their living standards still don't match those in the U.S.
On the other hand, manufacturing in the U.S. has been fading for decades. There is widespread agreement that many American manufacturers couldn’t compete with an influx of cheap imports after China joined the World Trade Organization (WTO) in 2001. Factories closed, workers were laid off and heartland communities withered.
Four years later, nearly 3 million manufacturing jobs had been lost. However, robots and other forms of automation probably did at least as much to reduce factory jobs as the "China shock."
To turn around this prolonged decline, Trump has repeatedly unsheathed the tariffs that are his weapon of choice. Since returning to the White House in January, he's imposed 25% taxes on foreign cars, steel and aluminum. He’s hit Chinese imports with 20% levies, on top of hefty tariffs he imposed on China during his first term.
Big bazooka
On April 2, he blasted his big bazooka: A 10% "baseline" tariff on just about everybody and "reciprocal" tariffs on everyone else that the Trump team identified as bad actors, including tiny Lesotho (a 50% import tax) and China (34% before adding earlier levies).
In addition, he announced another 50% levy, bringing it to a heavy 104% for China and later 125%, while China responded by imposing a total of an 84% tariff on U.S. imports from Thursday.
Trump views tariffs as an all-purpose economic fix that will protect American industries, encourage companies to open factories in America, raise money for the U.S. Treasury and give him leverage to bend other countries to his will, even on issues that have nothing to do with trade, such as drug trafficking and immigration.
The president also sees a smoking gun: The U.S. has bought more from other countries than it has sold them every year for the past half-century. In 2024, the U.S. trade deficit in goods and services reached a whopping $918 billion, the second-highest amount on record.
Trump trade adviser Peter Navarro calls America’s trade deficits "the sum of all cheating" by other countries.
However, economists say trade deficits aren’t a sign of national weakness. The U.S. economy has nearly quadrupled in size, adjusted for inflation, during that half-century of trade deficits.
"There is no reason to think that a bigger trade deficit means lower growth," said former IMF chief economist Maurice Obstfeld, a senior fellow at the Peterson Institute of International Economics and an economist at the University of California, Berkeley. "The opposite is closer to the truth in many countries."
A trade deficit, Obstfeld said, does not mean a country is losing through trade or being "ripped off."
The faster the U.S. economy grows, the more imports Americans tend to buy and the wider the trade deficit tends to get. The U.S. trade deficit – the gap between what it sells and what it buys from foreign countries – hit a record $945 billion in 2022 as the American economy roared back from COVID-19 lockdowns. Trade deficits typically fall sharply in recessions.
Nor are trade deficits primarily inflicted on America by other countries' unfair trading practices. To economists, they’re a homegrown product, the result of Americans' propensity to save little and consume more than they produce.
Confusion lingers
And with warning calls even from JPMorgan CEO Jamie Dimon and mainstream economists, the new tariffs somehow ended up being on hold for now. But what happens next?
Asian markets reacted positively early on Thursday, following a historic rally that saw the Nasdaq and S&P soaring to highs not seen since the early 2000s. Yet, the appetite for safe havens, including gold, persisted.
China repeated it would not fear the U.S. moves, vowing again to "continue until the end."
A spokesperson said the U.S. is exerting "maximum pressure" and using tariffs as a "weapon," vowing not to yield to Washington's latest trade moves.
Beijing will not fear the U.S.' "selfish" moves, Foreign Ministry spokesperson Lin Jian told reporters in the Chinese capital, adding that Beijing's response "will continue until the end."
European Commission President Ursula von der Leyen, on the other hand, on Thursday welcomed Trump's decision to temporarily halt most U.S. tariffs, and the European Union later during the day confirmed it would also pause its countermeasures for 90 days.
Earlier, Trump brushed off concerns about the tariffs and the market collapse by saying, "Sometimes you have to take medicine to fix something."
"BE COOL! Everything will work out well," he posted on Truth Social on Wednesday.
Trump also wrote: "THIS IS A GREAT TIME TO BUY!!!" – advice that turned out to be fortuitous. The president later said he'd been talking with his aides that morning about pausing the tariffs, an announcement that would send the stock market soaring.
Press secretary Karoline Leavitt scolded reporters at the White House for not understanding the president's plans.
"Many of you in the media clearly missed 'The Art of the Deal,'" she said, referencing Trump's book from 1987. "You clearly failed to see what President Trump is doing here."
But the administration sent mixed messages even as it rolled back the tariffs.
Treasury Secretary Scott Bessent said the decision had nothing to do with the markets.
"This was driven by the president's strategy," he told reporters outside the West Wing. "He and I had a long talk on Sunday, and this was his strategy all along."
Trump later contradicted Bessent.
"I was watching the bond market," he said. "That bond market is very tricky."
Despite the retreat, Trump showed no signs of regret. He saw dollar signs while chatting with championship race car drivers in the Oval Office.