In a stunning reversal, US President Donald Trump said on Wednesday he would temporarily lower the hefty duties he had just imposed on dozens of countries while further ramping up pressure on China, sending US stocks rocketing higher.
In the latest twist, Trump said he would suspend targeted tariffs on other countries for three months to allow time for US officials to negotiate with countries that have sought to reduce them.
But he kept the pressure on China, the No 2 provider of US imports. Trump said he would raise the tariff on Chinese imports to 125% from the 104% level that took effect at midnight, further escalating a high-stakes confrontation between the world's two largest economies. The two countries have traded tit-for-tat tariff hikes repeatedly over the past week.
Trump's reversal on the country-specific tariffs is not absolute. A 10% blanket duty on almost all US imports will remain in effect, the White House said. The announcement also does not appear to affect duties on autos, steel and aluminum that are already in place.
US stock indexes shot higher on the news, with the benchmark S&P 500 index closing 9.5% higher. Bond yields came off earlier highs and the dollar rebounded against safe-haven currencies.
Trump's turnabout, which came less than 24 hours after steep new tariffs kicked in on most trading partners, followed the most intense episode of financial market volatility since the early days of the COVID-19 pandemic. The upheaval erased trillions of dollars from stock markets and led to an unsettling surge in US government bond yields that appeared to catch Trump's attention.
"I saw last night that people were getting a little queasy," Trump told reporters following his announcement. "The bond market right now is beautiful."
Trump's tariffs had sparked a days-long selloff that erased trillions of dollars from global stocks and pressured US Treasury bonds and the dollar, which form the backbone of the global financial system. Canada and Japan said they would step in to provide stability if needed - a task usually performed by the United States during times of economic crisis.
Analysts said the sudden spike in share prices might not undo all of the damage. Surveys have found slowing business investment and household spending due to worries about the impact of the tariffs, and a Reuters/Ipsos survey found that three out of four Americans expect prices to increase in the months ahead.
Goldman Sachs cut its probability of a recession back to 45% after Trump's move, down from 65%, saying the tariffs left in place were still likely to result in a 15% increase in the overall tariff rate.
US Treasury Secretary Scott Bessent shrugged off questions about market turmoil and said the abrupt reversal rewarded countries that had heeded Trump's advice to refrain from retaliation. He suggested Trump had used the tariffs to create “maximum negotiating leverage for himself.”
"This was his strategy all along," Bessent told reporters. “And you might even say that he goaded China into a bad position. They responded. They have shown themselves to the world to be the bad actor.”
Bessent is the point person in the country-by-country negotiations that could address foreign aid and military cooperation as well as economic matters. Trump has spoken with leaders of Japan and South Korea, and a delegation from Vietnam was due to meet with US officials on Wednesday.
Bessent declined to say how long negotiations with the more than 75 countries that have reached out might take. Trump said a resolution with China was possible as well. But officials have said they will prioritize talks with other countries.
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