Donald Trump has been pushing markets to the brink of collapse for days, playing a power play in which he expects the other side to give in first. But on Wednesday, in a stunning reversal, the US president backed off on the toughest tariffs he had imposed on US trading partners, excluding China, declaring a 90-day pause in their implementation to give markets time to stabilize and leave room for negotiations.
Although news of the pause spurred a rally in global stock markets after a turbulent period of volatility that wiped trillions of dollars from the market, it failed to calm companies' concerns about the consequences of his trade war and the chaotic implementation of the measures: rising costs, falling orders and disrupted supply chains.
The trade war that the US president announced to the rest of the world with great fanfare on April 2 has turned out to be unsustainable, economically, financially and politically, the Financial Times reports. His decision to at least partially back down is a sign that Trump is not immune to pressure, whether from investors, lawmakers or donors, even on one of his key policy agendas.
The European Union announced yesterday that it would postpone the application of the first countermeasures on around 21 billion euros of imports from the US.
Business associations expressed some relief, but warned that the shockwaves caused by Trump's unpredictable policy direction were not over. They pointed out that 10 percent tariffs on most countries were still in place, that the US had further escalated its trade conflict with China, and that it was still unclear whether additional duties would be imposed on certain sectors, such as the automotive industry and pharmaceuticals.
“This temporary pause may ease the current burden, but it does not remove the uncertainty that is paralyzing trade planning, procurement and investment in companies,” Jake Colvin, president of the National Foreign Trade Council, a Washington lobbying organization, told the FT.
For business executives, the latest twist in Trump's tariff agenda has only deepened confusion about its real goal, according to Reuters, adding that the question of what comes next after the 90-day pause expires is now increasingly being asked.
The decision to at least partially concede is a sign that Trump is not immune to pressure, whether from investors, lawmakers or donors, even when it comes to one of his key policy agendas.
These complex calculations come at a time when consumer confidence is declining and fears of a global recession are growing.
"Global trade flows are extremely complex, and the conditions for cross-border exchange are currently changing very rapidly," German chemical company BASF said yesterday.
Tech giant Apple has chartered cargo planes to transport 600 tons of iPhones, or about 1,5 million units, from India to the US.
Analysts have warned that iPhone prices in the US could rise sharply, given that Apple is heavily dependent on imports from China, the main manufacturing hub for the devices, which is now subject to Trump's highest tariff rate - a staggering 125%.
“The 90-day tariff pause, while presented as temporary relief, creates significant uncertainty for companies,” Anita Wright, a chartered financial planner at Bolton James, told Reuters. Trump says he wants to bring manufacturing back to the United States, but the constant policy changes make long-term investments risky. “Companies are likely to remain cautious on costs and hiring until they get a clearer picture of long-term trade policy,” Wright added.
Some companies, including General Motors, Porsche and Mercedes-Benz, have built up inventories in the US to forestall the tariffs.
But uncertainty is casting a shadow over business prospects for the rest of the year, retail executives warn. Weakening US consumer confidence is already weighing on spending.
The temporary tariff relief announced by Trump does not bring significant relief to companies in the automotive, steel and aluminum industries, which still pay US tariffs of 25%.
Serbian company Testeral, which produces aluminum and PVC products for the construction industry, could be forced to lay off some employees if tariffs remain in effect, CEO Sanja Stanimirovic told Reuters.
The company cannot easily raise prices to cover the additional costs because it is tied to long-term contracts, she added. Testeral employs about 120 full-time workers and another 80 seasonal or part-time workers.
"These tariffs currently pose a serious risk to our business," Stanimirović warned.
In the US, Democrats, who have so far struggled to find an effective way to attack the US president, are using the political gift that Trump has given them.
“The chaos, uncertainty and real damage caused by Trump’s tariffs will not go away in 90 days. The bottom line is this: the president has caused global chaos at the expense of American families and businesses,” said Illinois Senator Dick Durbin.
Former US Treasury Secretary Janet Yellen said in an interview with CNN yesterday that "the Trump administration's economic measures are the most severe wound that one government could have inflicted on an economy that was functioning well" and pointed out that "the probability of a recession in the US has increased."
Jelen, in her first television interview since leaving office, said yields on U.S. Treasury bonds had risen sharply amid the financial turmoil caused by the tariffs, prompting investors to question the safe-haven status of those bonds. Bond yields move inversely to their prices.
“That forced highly leveraged hedge funds, which hold US government bonds, to start selling their positions, and a massive sale of US bonds could really cause financial instability,” Jelen said. “As far as I understand, that was one of the factors that influenced President Trump to stop the reciprocal tariffs.”
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