Trump's 90-Day Tariff Pause Boosts S&P 500 4% Before Retreat

President Donald Trump announced a significant shift in U.S. trade policy on Wednesday, declaring a 90-day pause on tariffs for countries that have not retaliated against the U.S. This announcement brought immediate relief to global markets, which had been bracing for an escalating trade war. The benchmark S&P 500 index surged, reflecting investor optimism about the potential de-escalation of trade tensions. Trump's decision to pause tariffs for 90 days, along with a reduction in the reciprocal tariff rate to 10% for non-retaliating countries, was seen as a positive development for global trade.

However, the tariff pause did not extend to China. Trump unilaterally raised the U.S. tariff rate on Chinese goods to 125%, effective immediately. This move was part of a broader strategy to pressure China into negotiating more favorable trade terms. The U.S. Customs and Border Protection had been prepared for the implementation of these tariffs, which included a 104% tariff on Chinese goods. This escalation in tariffs was met with a retaliatory response from China, which announced an 84% tariff on U.S. goods. The EU also voted to adopt a 25% tariff on a range of U.S. goods worth roughly $23 billion, further complicating the global trade landscape.

The announcement of the 90-day tariff pause had an immediate impact on financial markets. U.S. stocks soared, with the S&P 500, Nasdaq 100, and Russell 2000 all experiencing significant gains. This market reaction was driven by the perception that the pause could provide a window for negotiations and potentially avert a full-blown trade war. However, the market gains were short-lived as investors began to realize the complexity of the situation. The S&P 500 completely retraced an advance of 4% on confirmation that an escalating trade war was indeed happening.

The tariff pause was not universally welcomed, and there was uncertainty about how other countries would respond. Various countries were still deciding how to react, and companies began adjusting to the new reality by raising prices. The Philippines, for example, had written to the U.S. requesting meetings, but was still waiting for a reply. This uncertainty led to wild swings in markets as investors tried to gauge the potential impact of the tariffs.

Trump's expanded tariffs came on top of a blanket 10% tariff on all goods coming into the U.S., which had taken effect on April 5. The rapid-fire changes in trade policy left many countries and companies scrambling to adapt. The situation was further complicated by the fact that many foreign governments were still waiting for clarification on what exactly Trump was seeking in negotiations. This lack of clarity added to the market volatility and uncertainty.

In summary, President Trump's announcement of a 90-day pause on tariffs for non-retaliating countries was met with initial optimism in global markets. However, the exclusion of China from this pause and the escalating tariffs on Chinese goods led to a complex and uncertain trade landscape. The market reaction was volatile, reflecting the uncertainty and potential impact of the tariffs on global trade and the economy.