President Donald Trump announced a complete three-month pause on all the “reciprocal” tariffs that went into effect at midnight, with the exception of China, a stunning reversal from a president who had insisted historically high tariffs were here to stay.
But enormous tariffs will remain on China, the world’s second-largest economy. In fact, Trump said they will be increased to 125 percent from 104 percent after China announced additional retaliatory tariffs against the United States earlier Wednesday. All other countries that were subjected to reciprocal tariff rates Wednesday will see rates go back down to the universal 10 percent rate, he said.
“Based on the lack of respect that China has shown to the World’s Markets, I am hereby raising the Tariff charged to China by the United States of America to 125 percent, effective immediately,” Trump said in his social media post. “At some point, hopefully in the near future, China will realize that the days of ripping off the U.S.A., and other Countries, is no longer sustainable or acceptable,” he wrote.
Speaking to reporters after the announcement, Trump said, “Nothing’s over yet, but we have a tremendous amount of spirit from other countries, including China. China wants to make a deal, they just don’t know how quite to go about it.”
Mexico and Canada won’t face the 10 percent tariffs, a White House official told CNN. Almost every good coming from the two nations will continue to be tariffed at 25 percent, unless they are compliant with the US-Mexico-Canada Agreement, in which case they won’t face tariffs. However, that does not apply to sector-specific tariffs Trump has imposed.
Wall Street breathed a sigh of relief, however, that Trump was backing down on other extreme trade measures. Stocks rallied sharply on the news – even though the 10 percent universal tariff on all imports coming into the United States remained in effect.
The Dow surged nearly 3,000 points or 7.87 percent, on Wednesday. The S&P 500 shot up 9.5 percent. The tech-heavy Nasdaq soared 12.2 percent. This marked the best day for the S&P 500 since October 2008. The Nasdaq posted its best day since January 2001 and its second-best day on record. While the Dow posted its best day in five years.
This comes after markets have been getting slammed by the prospect of the significantly higher tariffs Trump laid out last week.
Hours before making the announcement, Trump said “THIS IS A GREAT TIME TO BUY!!!”
He concluded the post with “DJT,” potentially a nod to Trump Media & Technology Group Corp, which trades under the ticker “DJT.” At the time, the parent of Truth Social, DJT shares were down nearly 13 percent this month. After the announcement, shares were up over 20 percent for Wednesday alone.
Trump told reporters his decision to move forward with the pause was in part influenced by people “getting a little yippy yappy.”
“You have to have flexibility,” he added, a stark about-face from recent comments he and administration officials have made recently insisting Trump was not going to back off his promises.
Pause was baked into Trump’s tariff strategy
Shortly after the announcement, Treasury Secretary Scott Bessent said the pause was part of “his strategy all along.” But he also said that Trump had “great courage to stay the course until this moment.”
CNN previously reported that Bessent traveled to Mar-a-Lago on Sunday to discuss the tariffs with Trump, encouraging him to focus on an endgame of reaching new deals with a variety of countries.
Meanwhile, US Trade Representative Jamieson Greer on Wednesday testified at a House hearing that he wasn’t aware of the pause until after it was announced.
Greer added he was aware the policy change was a possibility Wednesday morning, but when asked directly if he knew the policy was going into effect, he replied that the administration discusses “all kinds of policies.”
Trump later told reporters that the plan “came together early this morning” after meeting with Commerce Secretary Howard Lutnick and Bessent. “We wrote it up from our hearts.”
Bessent said Trump would be “personally involved” in all the discussions as he seeks out concessions.
“No one creates leverage for himself like President Trump,” Bessent said.
The message sought to cast to other countries was: “Do not retaliate and you will be rewarded,” he said, adding that the move “signals that President Trump cares about trade and that we want to negotiate in good faith.”
He and and Commerce Secretary Howard Lutnick were with Trump when he sent his message on Truth Social, Lutnick confirmed on a post on X.
“Scott Bessent and I sat with the President while he wrote one of the most extraordinary Truth posts of his Presidency,” Lutnick said. “The world is ready to work with President Trump to fix global trade, and China has chosen the opposite direction.”
Bessent didn’t offer many details on what could happen after the 90-day pause, but he said the administration will continue to have discussions with other countries in the interim. For example, he said US government officials are meeting with representatives from Vietnam on Wednesday.
“These are complicated negotiations,” he said. But having seen the “maximum level” that Trump is willing to go on tariffs, he feels more countries will be willing to give in.
Escalating tensions with China
The higher tariffs on China came after Beijing announced new retaliatory tariffs of 84 percent on US goods set to take effect on Thursday.
The Trump administration has taken particular aim at China’s trade practices.
“We will see what China does but what I’m certain of is what China is doing will affect their economy much more than ours,” Bessent said Wednesday.
Trump appears to be ratcheting up pressure in the hopes that President Xi Jinping will blink first. He may be waiting a while, according to Wendong Zhang, an assistant professor of applied economics and policy at Cornell University.
“China has vowed to ‘fight to the end,’ and there are risks of even more escalations,” Zhang said in an email. “China has already reduced its reliance on US products, such as soybeans and other agricultural products, since the 2018-19 trade war. But this time around, Chinese leaders have the backing of a more supportive general public to stand up to the US and pivot to domestic consumption.”
Announcing China’s response, the State Council Tariff Commission said in a statement: “The US escalation of tariffs on China is a mistake upon mistake, severely infringing upon China’s legitimate rights and interests, and seriously damaging the multilateral trading system based on rules.”
The amped-up retaliation comes after China repeatedly warned that it would “fight to the end” if the US moved forward with further tariffs.
Pushing off a recession?
Economists significantly increased forecasts for a recession after Trump proceeded with the reciprocal tariff package, which called for tariffs as high as 50 percent impacting dozens of countries.
While the 90-day pause may have been welcome news to investors, it’s unlikely to stave off a recession, Joe Brusuelas, chief economist of RSM US, told CNN Wednesday.
“My sense here is that the (US) economy is still likely to fall into recession, given the level of simultaneous shocks that it’s absorbed,” Brusuelas said in an interview. “All this does is postpone temporarily what will likely be a series of punitive import taxes put on US trade allies.”
Goldman Sachs economists said after Wednesday’s announcement they were reverting to a prior forecast predicting a 45 percent chance of a recession in the next 12 months. Before the announcement, they forecast a recession as the “base case,” meaning it was highly likely to occur.
Jake Colvin, president of the National Foreign Trade Council, which represents a wide range of importers, said the pause is “a step in the right direction.”
But he cautioned, “Let’s not celebrate the fact that it still seems to leave in place a new baseline of 10 percent tariffs on most countries, plus significant levies on China, steel and aluminum and autos, with the promise of more duties to come.”
Colvin was referring to the 25 percent tariffs that remain in place on the three industries. Trump has also vowed to impose tariffs on a slew of other industries, including lumber, pharmaceuticals and copper.
Ultimately the pause does little to alleviate businesses of the uncertainty they’ve faced since Trump’s November victory regarding the tariff environment, he said.
CNN’s Bryan Mena, Allison Morrow, Donald Judd and Alicia Wallace contributed reporting.
