The chief tenets of The Art of the Deal are to aim high, maximize leverage, stay resilient, keep people guessing, and deliver the goods. President Donald Trump, one week after America declared its "economic independence," made good use of these tactics by handing out a 90-day reprieve on extra tariffs for countries that declined to retaliate. Everyone, from Wall Street to Democrats, quickly opened the book and celebrated the latest pause on reciprocal tariffs.
Reciprocal Tariffs Paused for 90 Days
In a Truth Social post, President Trump announced he would drop new reciprocal tariffs on imports from most US trade partners to 10% for 90 days to facilitate trade negotiations with those countries. He also confirmed he was increasing tariffs on Chinese goods to 125% "effective immediately" because of the "lack of respect that China has shown to the world's markets."
Trump confirmed that more than 75 countries have contacted the administration to begin negotiations. The decision, which ostensibly rewards nations for not embarking upon retaliatory measures, was justified because "people were jumping a little bit out of line," and "they were getting yippy." Indeed, Trump is prioritizing trade discussions with Japan and South Korea and then moving on to the broad array of countries that have already reached out, from Vietnam to Israel.
While this appeared to come out of nowhere, senior administration officials say this was the president's plan all along. Speaking to reporters at the White House, Treasury Secretary Scott Bessent purported that Trump had always planned to suspend levies. Commerce Secretary Howard Lutnick also took to social media and stated he and Bessent worked with the president to craft "one of the most extraordinary Truth posts of his Presidency." He added: "The world is ready to work with President Trump to fix global trade, and China has chosen the opposite direction."
Democratic lawmakers, meanwhile, said the president reversed his trade policy endeavors because he "is feeling the heat from Democrats." Senate Majority Leader Chuck Schumer (D-NY), who had long advocated for punitive tariffs on China, told reporters at a press briefing that Trump "is reeling … retreating, and that is a good thing."
Investors were also ebullient over the news as the financial markets had one of the greatest trading sessions in history. The blue-chip Dow Jones Industrial Average rocketed nearly 3,000 points. The tech-heavy Nasdaq Composite Index soared close to 1,900 points, and the broader S&P 500 spiked about 500 points, or 9.52%. It was a sharp reversal after the benchmark indexes were mostly in the red during early trading. Traders could have bought at the bottom if they had heeded Trump’s Truth Social post, with the president writing three hours before the big news, "This is a great time to buy!"
The World Against China
Early July will prove to be a pivotal period for the Trump administration, the financial markets, and the global economy. This is when the 90-day pause will be lifted, and countries will have either established agreements to dismantle their non-monetary trade barriers or the president will reintroduce reciprocal tariffs.
The next three months will tell whether the world will coalesce with the United States and slay the red dragon or try to appease both parties. Spanish Prime Minister Pedro Sánchez recently told the European Union that the bloc should reconsider its approach to China, suggesting that Europe must be friendlier to the world’s second-largest economy. European Commission President Ursula von der Leyen has reportedly sought the assistance of the Chinese regime to limit Trump’s trade crusade with the rest of the world.
Bessent presented a simple message for anyone mulling over a similar strategy: Any country aligning itself with Beijing is akin to “cutting your own throat.” He summarized the situation by pointing out that China exports far more to the United States than the US does to Beijing. "They're playing with a pair of twos," Bessent said on CNBC's Squawk Box. "What do we lose by the Chinese raising tariffs on us? We export one-fifth to them of what they export to us, so that is a losing hand for them."
Recession Is Over
After weeks of intensifying recession fears, the temporary pause on reciprocal tariffs has ended the prospects of an economic downturn. Goldman Sachs, which raised its odds of back-to-back quarters of negative GDP growth to 65%, rescinded its outlook following Trump’s announcement. Instead, it returned to its initial baseline forecast for 2025, projecting the US economy to grow. Despite being the most transparent and studied man in modern US politics, the chattering class still has yet to learn from The Art of the Deal – and failure to do so will repeat these cycles.
