President Donald Trump’s sudden decision, which saw him implement a 90-day moratorium on tariffs he imposed on dozens of countries, has resulted in a surge in the invading stock market, even if he ratcheted a trade war with China.
Trump’s turn on Wednesday, which came just 13 hours after the duties came into effect, followed by the most intense episode of financial market volatility since the Covid-19 pandemic.
Stocks have skyrocketed following Trump’s announcement of suspension on several tariffs. The S&P 500 rose 9.5% on Wednesday, the index’s biggest day leap since 2008. This has slipped away in the horrors of the recent global recession, but has been repeated in the news.
Still, not all Trump’s tariffs have been lifted. Most countries collect 10%. Meanwhile, the US escalated the trade war with China, raising tariffs to a whopping 125%, deepening the economic crisis between the two biggest economies in the world.
What is Trump’s latest move?
On Wednesday, Trump announced a 90-day suspension of “mutual” tariffs in almost 60 countries and the European Union. Tariffs were customized for each country to accommodate the size of the trade surplus with the United States.
Imports from these countries will be subject to the 10% flat rate tax that Trump introduced on April 5th. China is not included in the suspension.
Instead, Trump announced that he would raise the tax on Chinese products from 104% to 125%. Trump’s decision comes after Beijing announced plans to retaliate on Wednesday with an 84% mandate on American goods.
World Trade Organization (WTO) Director Ngozi Okonjo-Iweala said tensions “substantial risks of sharp contraction in bilateral trade between the US and China.”
“Our preliminary forecasts suggest that commodity transactions between these two economies could fall by as much as 80%,” she said in a statement on April 9th.
What did Trump actually say?
At a White House event celebrating NASCAR Cup Series champion Joey Logano, Trump argued that his way of allocating and adjusting tariffs was based on “instinct more than anything else.”
“You have to be flexible,” he said. Trump has admitted that some investors were “uncomfortable” about the economic turbulence spurred by his tariffs.
“I thought people were jumping a little lined up, they got Yippy, you know,” however he emphasized his positive outlook on the financial markets.
“They (stock prices) change,” he said after the latest tariff adjustments, the markets gathered on “the biggest day in financial history.” “That’s a pretty big change.”
He added that the country lined up to do business with his administration.
“You know, there are many other countries — over 75 — and they all want to come.” He also predicted that the US will enjoy dividends by the end of the year.
“I told them, so I put a 90-day pause for those who didn’t retaliate. And that’s what I did in China, because they retaliated.”
He re-emphasized that his punitive tariff campaign against China will push Beijing to the negotiation table.
“There could be trades with all of them. There would be trades with China. There would be trades with all of them. And they would be fair.
“They weren’t fair to the US. They were drying us out. You can’t do that.”
What is the status of US-China trade relations?
Despite growing tensions between the US and China, Washington and Beijing remain major trading partners.
The total commodity trade between the US and China was estimated at $58.24 billion in 2024, according to data from the US Trade Representative. Meanwhile, US imports from China totaled $43.89 billion. As a result, the US trade deficit with China was $295.4 billion last year, a 5.8% increase ($16.3 billion) in 2023.
China is the third largest trading partner in the United States, after Mexico and Canada. However, the US is slowly weaning from Chinese imports.
Chinese products accounted for 13.3% of US imports in 2024, down from the 21.6% peak in 2017.
Still, from washing machines and TV sets to clothing, China is one of the top suppliers of products to the US.
The US Department of Commerce calculated that in 2022 46.4% of all US imports from China were achieved by mechanical appliances (mainly low to medium technology products).
On the other hand, in 2024, $24.7 billion in agricultural products were exported from the US to China. Mainly in the form of soybeans.
China is also a large importer of US agricultural equipment, computer chips and fossil fuels.
How can the US benefit?
Trump has long argued that tariffs could reduce the US trade deficit and bring foreign production back to the US. He also says they pave the way for future tax cuts.
In 1979, approximately 20 million Americans made their living in manufacturing. Today, it is close to 12.5 million people.
For the years after World War II, the United States was a major producer of automobiles, aircraft and steel.
“Since then,” says Vincent Bicard, head of international trade at the economic think tank CEPII. “Increasing foreign competition and productivity has reduced the US relative share of manufacturing.”
“And it’s hard to say exactly what Trump wants,” Vicard told Al Jazeera.
He pointed out, “Some industries, such as automobiles and steel, could benefit from lower foreign competition. However, they would also face higher prices for intermediate goods (used in their own manufacturing processes).”
“In the long term, investments in some industries could potentially be invested in more than five years. However, the impact of tariffs on short-term consumers will be higher prices,” Vicard said.
How do tariffs hurt the US?
Trump hopes that his tariff regime will erode China’s trade surplus, but Beijing is benefiting from the established competitive advantages.
China’s industrial advantage is not easily stolen, according to Brian Callton, chief economist at Fitch Rating Agency.
“In recent decades, China has built an incredible logistics and infrastructure network (centred around its major manufacturing sectors),” he said. “They are surprisingly productive.”
He also pointed out that “wage costs per production hour in the United States are around $30, compared to around $12 in China.” In other words, labor costs are much lower.
Coulton told Al Jazeera that US “electronics and digital” companies are particularly exposed to Trump’s latest Chinese tariffs. “Apple, for example, is at a higher risk.”
He said, “These are industries that import intermediate goods from China. So the question is whether to absorb higher costs through a higher profit margin or to hand them over to consumers.”
In the case of Coulton, it could be a combination of both. “That means narrowing down business activities and increasing household costs.”
He expects US inflation to exceed 4% this year, starting from the current 2.8 and until gross domestic product (GDP) growth slows.
During Trump’s first trade war with China in 2018, the US-China Business Council estimated that 245,000 US jobs had been lost. It is fair to assume that more work will be sweeped, as the tariffs are larger than today.
“Trump tariffs are dramatic… They’ll shock the US economy,” Coulton said.