US President Donald Trump stunned global investors on Wednesday with an unexpected move—a 90-day pause on additional tariffs for countries that were willing to negotiate with the US. The announcement sent shockwaves through financial markets, prompting a massive rally in US equities as Wall Street rebounded from a week of market turmoil. However, while the pause provided a short-term reprieve, Trump made it clear that the trade war with China was far from over, as he escalated tariffs on the world’s second-largest economy to a staggering 125%.
A Rollercoaster Day for Global Markets
Following Trump’s announcement, the US stock market surged to unprecedented heights. The blue-chip S&P 500 skyrocketed by 9.5%, marking its best day since 2008, while the tech-heavy Nasdaq Composite soared 12.2%, its strongest performance since 2001. This extraordinary rally added about $4.3 trillion to the market value of the S&P 500, according to Financial Times calculations. The sharp climb in stock prices reversed some of the heavy losses seen in recent days, as investors had feared that Trump’s trade policies were pushing the US economy toward a recession.
As Bloomberg reported, the rally was sparked by Trump’s sudden reversal, which included a pause on tariffs for countries willing to negotiate with the US. The President’s decision seemed to offer hope that the global trade tensions could ease, but his move to single out China, by raising tariffs to 125%, ensured that the trade standoff with Beijing would remain unresolved.
“This is Trump’s capitulation to markets,” said Andy Brenner, head of international fixed income at NatAlliance Securities. “He has saved face by keeping tariffs on China.”
The Yuan Hits a Two-Decade Low
While US stocks saw a sharp rebound, China’s onshore yuan continued to face mounting pressure, slipping to 7.3518 against the dollar, the lowest level since December 2007. The yuan’s decline has been driven by persistent concerns over the trade war and Beijing’s response to Washington’s tariffs. As Bloomberg pointed out, the currency has been under growing pressure, with analysts speculating that China might allow the yuan to weaken further to offset the impact of US tariffs and make its exports more competitive.
The People’s Bank of China (PBOC) has been playing a delicate balancing act, weakening the yuan in small increments to avoid a sharp devaluation that could harm investor confidence. However, the recent drop below the 7.35 mark signals that Beijing may be willing to allow more flexibility in its currency management to cushion the economic blow from the trade war. While China has refrained from aggressive devaluation—despite speculation from market analysts—the yuan’s continued slide highlights the broader economic uncertainty that continues to affect both China and the global economy.
A “Capitulation” or Just a Pause?
The market’s relief after Trump’s tariff pause was palpable, but the underlying concerns remained. Wall Street had been shaken by weeks of market volatility, with trillions of dollars wiped off global equity values and a sharp sell-off in US government bonds. Just before Trump’s announcement, analysts at Goldman Sachs had predicted that the US economy could slip into a recession as a result of the escalating trade war. However, following the news of the 90-day tariff pause, Goldman swiftly reversed its call, acknowledging that the president’s move could reduce some of the pressure on the US economy.
Despite the positive market reaction, analysts cautioned that the uncertainty surrounding global trade would continue to pose a significant challenge for economic growth. Citigroup, for example, noted that pausing tariffs on countries excluding China did not mean the US economy had avoided a slowdown. “Uncertainty over trade will persist, and non-China imports may now surge, damping growth in the second quarter,” said Citigroup in a statement.
Moreover, Trump’s continued tariff imposition on China signals that the trade battle with Beijing is far from over. Trump justified the hike in tariffs on China by accusing Beijing of “lack of respect” and emphasized that China’s retaliatory measures had left him no choice but to escalate the trade standoff. His comments underscore the long-term nature of the US-China trade conflict, which is expected to persist despite short-term market gains.
A New Phase of Trade Negotiations
Trump’s announcement also signaled the beginning of a new phase in global trade relations. The pause on tariffs, alongside Trump’s offer to engage in trade talks with countries willing to negotiate, opened the door for multiple parallel trade negotiations between the US and its major trading partners. The decision to focus on talks with countries like the European Union, Japan, and others, excluding China, could reshape global trade dynamics in the coming weeks.
However, Commerce Secretary Howard Lutnick was quick to clarify that the US would not back down from its stance on China. In a post on X, Lutnick expressed his frustration with China, saying that Beijing had “chosen the opposite direction” in the trade conflict. Despite the pause on tariffs for some countries, China remained firmly in Trump’s crosshairs.
As the dust settles on Wednesday’s market rally, analysts are divided on the future trajectory of the trade war and its impact on the global economy. While the immediate relief provided by the tariff pause is welcomed by markets, the broader uncertainties surrounding global trade and the economic effects of the remaining tariffs are far from resolved.
