A belief in tariffs as an essential tool in economic statecraft has been a constant in President Donald Trump’s career. His recent unprecedented moves to impose sweeping import tariffs – starting at 10% and rising to 50% and more – sparked panic in global markets and rattled U.S. trading partners.
On Wednesday, President Trump abruptly announced a 90-day pause during which all countries except China would pay only a 10% tariff, to allow for talks. Treasury Secretary Scott Bessent told reporters at the White House that Mr. Trump hadn’t changed course and had always intended to force countries to the negotiating table. “This was his strategy all along,” he said, while criticizing China for imposing retaliatory tariffs.
The announcement, which came on another day of volatile markets and pressure on U.S. bonds, was met with a burst of relief in the stock market, which saw immediate gains. Yet uncertainty over the direction of U.S. trade policy is likely to persist. And that uncertainty could prove corrosive for trust in the U.S. as a steward of global economic cooperation, say analysts. Just as Mr. Trump has upended long-standing military and diplomatic commitments, most notably in his approach to allies in Europe, the economic roller coaster he put the entire global community on in recent weeks signals a new era of instability, in which the U.S. is no longer a predictable anchor.
Why We Wrote This
President Donald Trump’s 90-day pause on tariffs gave financial markets a reprieve. But whatever happens next in negotiations, the United States now looks to many nations like a source of uncertainty rather than a promoter of rule-based global order.
Mr. Trump’s original tariff rates, most of which had gone into effect at midnight Tuesday, threatened to raise the price of imported goods, depress trade flows, and potentially even cause a recession – which is why U.S. stocks lost more than $5 trillion in two days last week. Stock markets in Asia and Europe suffered similar selloffs on fears of a global economic downturn.
Over the past few days, the market swung wildly, often reacting to contradictory bits of information. Some investors began buying stocks after Trump administration officials said trade negotiations were underway with Japan and other countries. At the same time, key Trump advisers such as Peter Navarro, a senior counselor for trade, have continued to argue that U.S. manufacturing faces a “national emergency” that requires protectionist barriers. “This is not a negotiation,” he wrote in an opinion article on Monday.
Despite the new “pause,” the tariffs have already delivered a shock to the global economy, says Heather Hurlburt, former chief of staff to President Joe Biden’s U.S. Trade Representative, Katherine Tai. More troubling, she adds, they’ve delivered a longer-term shock to the idea that the U.S. supports a rules-based order for global trade, undergirded by military power. For U.S. trading partners, the end of this order creates an ongoing sense of risk.
“Making a deal [on tariffs] doesn’t mean you don’t have to make a deal again in six weeks or six months. That puts an element of instability into the system,” she says.
High risks in financial markets
Even as duties were revised down on other countries, Mr. Trump said tariffs would rise to 125% on goods from China, the world’s manufacturing powerhouse. At that level, many imports from China would become prohibitively expensive for U.S. companies, including manufacturers that rely on foreign components.
Before Mr. Trump’s announcement, market panic had spread to U.S. Treasury bonds – the linchpin of capital markets – and threatened a wider contagion. Former Treasury Secretary Larry Summers warned of a “generalized aversion to U.S. assets” that could spark a financial crisis. Writing on X, he said the only way to mitigate the risk was for Mr. Trump “to back off his current path.”
Yet even as the president agrees to talks with other world leaders, Mr. Trump’s evident, long-standing enthusiasm for tariffs is likely to hang over the negotiations. Mr. Trump and his advisers have repeatedly argued that other countries for decades have been gaming the existing trade system in ways that penalize U.S. industries. To rebuild these industries, the U.S. needs to raise tariffs, even if it means U.S. consumers will pay more for imported goods. Their goal is to reduce the U.S. trade deficit of $1.2 trillion, which is the difference between exports and imports, a measure that Mr. Trump equates with countries “ripping off” the U.S.
Mr. Navarro, a China hawk who served in Mr. Trump’s first administration says the president is “always willing to listen” to trading partners. “But to those world leaders who, after decades of cheating, are suddenly offering to lower tariffs – know this: that’s just the beginning,” he wrote on Monday.
U.S. is “not a stable and reliable partner”
In his first term, Mr. Trump imposed tariffs on steel and aluminum, as well as on a range of imports from China. Mr. Biden kept the tariffs on China in place, while also pursuing an industrial policy that provided subsidies for green industries and invested in domestic infrastructure.
Before Mr. Trump, most Republican lawmakers supported free trade and the expansion of U.S. influence through global economic cooperation. Some GOP senators have expressed concern about Mr. Trump’s tariffs. Recently, more than half a dozen signed onto a bill that would curb the administration’s ability to impose tariffs without approval from Congress. The White House has vowed to veto any such bill. And House Speaker Mike Johnson hasn’t wavered in his support for Mr. Trump’s tariffs.
That the Congress appears unable or unwilling to check the administration on tariffs is another reason to doubt the steady hand of U.S. policy, says Anand Menon, a professor of European politics and foreign affairs at King’s College, University of London. “The United States is obviously not a stable and reliable partner. It’s just too unpredictable,” he says.
Damaging the “reputational capital” of the U.S. carries long-term risks, says Ian Bremner, president of Eurasia Group, a U.S. consulting firm. In his weekly newsletter, he argues that U.S. power “is underpinned by the fact that it engenders a level of international trust.” Promoting “a set of rules that are seen as only helping Americans” undercuts that trust, he writes.
U.S. allies have been responding differently to Mr. Trump’s tumultuous policy shifts. Before Wednesday’s pause, Canada had imposed reciprocal tariffs and Prime Minister Mark Carney said recently the U.S. was no longer “a reliable partner” on trade. French President Emmanuel Macron said French companies should pause investments in the U.S. until it clarified its “brutal and unfounded” tariffs. But smaller economies such as Vietnam scrambled to offer concessions to the U.S., its largest export market.
Republican Sen. John Kennedy of Louisiana said Wednesday morning that Mr. Trump had achieved “an extraordinary thing” by imposing tariffs. Speaking on MSNBC’s Morning Joe, he said “probably 40 percent” of countries have “come forward and instead of … fighting, they’ve said, ‘we want to lower our tariffs. Will you lower yours?’ I frankly never saw that coming. … I think it is a wonderful opportunity.”
It’s unclear how such talks will proceed, and how tariffs may be readjusted. Secretary Bessent told reporters Wednesday afternoon there would be a “separate, bespoke negotiation” with each individual country. “No one creates leverage for himself like Donald Trump,” he said.
Nathan Denette /The Canadian Press/AP
Major trading partners are likely to make demands on the U.S. before removing their own tariffs. The EU said Wednesday it had approved tariffs on U.S. goods in retaliation for a 25% U.S. duty on steel, which has now been cut to 10% under the 90-day pause.
The United Kingdom “hasn’t made up its mind on whether to give up on the U.S.,” says Professor Menon, noting Prime Minister Keir Starmer’s hesitancy to criticize Mr. Trump or threaten retaliation. “We’re all wrestling with ways of dealing with U.S. unpredictability.”
Some commentators have drawn parallels between market reactions to Mr. Trump’s tariffs and to a budget proposed by newly appointed U.K. Prime Minister Liz Truss in September 2022. After a selloff of U.K. bonds, Ms. Truss resigned, becoming the country’s shortest-serving leader. But the U.K.’s market rout was self-contained; turmoil in U.S. capital markets triggers global chaos.
The political difference, says Professor Menon, is that Ms. Truss quickly lost voters’ confidence and lacked Mr. Trump’s solid electoral base. And unlike in a parliamentary system, Mr. Trump can’t be easily removed from office. “Trump is immovable. Even if the U.S. causes a global economic recession we have more than three years of Trump,” he says.
Breaking the WTO and world trading system?
To some extent, the world has already begun to recalibrate for an era in which the U.S. is no longer setting the global trade agenda. The U.S. hasn’t signed a new trade agreement since 2020, while countries like China, India, and the 27-member European Union bloc have been negotiating deals with each other and with smaller economies. Ahead of Mr. Trump’s tariff announcement, Japan, South Korea, and China held a rare meeting on economic cooperation.
At the same time, the digital economy has exploded, forcing a rethink in how trade is regulated. Mr. Trump’s formula for imposing tariffs is based only on trade in goods, not services, which overlooks the profits made by U.S. entities from exporting services like cloud computing and legal and educational services. The U.S. runs a trade surplus in services.
Previous administrations have used tariffs as leverage to open foreign markets to U.S. companies. In the 1980s, President Ronald Reagan did this with Japan. But he also supported a U.S.-led multilateral trade system.
While past U.S. administrations have at times chafed under World Trade Organization rules, none has rejected its framework for trade relations as Mr. Trump has done, by levying discriminatory tariffs under his own idiosyncratic and arbitrary formula. “This is likely to break the WTO and the international trading system in place since World War II,” says Charles Hankla, a political scientist at Georgia State University who studies trade policymaking.
Some of Mr. Trump’s allies in the financial community had been all but begging for the president to change course in recent days. Hedge-fund manager Bill Ackman had specifically suggested a 90-day pause, warning on X of a “self-induced, economic nuclear winter” and the risk of “destroying confidence in our country as a trading partner, as a place to do business, and as a market to invest capital.”
That may already have happened when it comes to international economic cooperation, says Ms. Hurlburt. “This feels like a rejection of the whole [rules-based] system in favor of a system where we set rates because we feel like it.”
