In a dramatic policy reversal that sent global markets on a wild ride, US president Donald Trump announced a 90-day pause on tariffs for most nations on 9 April 2025. The sudden retreat came after days of market turbulence that erased trillions in global stock value and sparked a violent sell-off in US treasury bonds that evoked comparisons to the COVID-era' dash for cash'.
While stepping back from the brink of a full-scale global trade war, president Trump simultaneously escalated tensions with Beijing by raising tariffs on Chinese imports from 104% to an unprecedented 125%. This followed China's earlier move to increase duties on American goods to 84% in response to the initial US tariff announcement. However, the pause in tariffs is far from a full cessation.
The 90-day pause applies only to the new 'reciprocal' tariffs — those targeting countries with large trade surpluses against the US. It does not reverse president Trump's blanket 10% tariff on nearly all imports, nor does it roll back higher duties on select sectors such as automobiles (25%). Additional levies on sensitive sectors like pharmaceuticals and semiconductors remain under consideration. President Trump's tariffs have taken America's average effective tariff rate from 3% to around 25%—the highest since the Smoot-Hawley tariff of 1930.
The policy reversal sparked a dramatic market recovery, with the S&P 500 surging 9.5% on Wednesday—its largest one-day gain in over a decade. European markets followed suit on Thursday, with the pan-continental STOXX 600 rising 5.3%, on track for its biggest single-day gain since March 2020. Major indexes in London, Paris, and Frankfurt climbed between 4.1% and 5.6%.
In Asia, Japan's Nikkei advanced more than 8%, while a broader gauge of Asia-Pacific stocks excluding Japan rose 4.4%. Even Chinese markets showed gains, with the CSI300 blue-chip index rising 1.3% and Hong Kong's Hang Seng Index advancing 2%.
However, Wall Street futures took a breather after Wednesday's towering rally, with NASDAQ futures falling 2% and S&P 500 futures declining 1.7% on Thursday as investors continued to process the administration's erratic economic policies.
GIFT Nifty witnessed a significant surge. Reports indicate a jump of as much as 3.17%, signalling a strong positive opening for the Indian stock market on Friday, 11 April 2025, when the Indian markets will reopen after a holiday on Thursday.
Data from the US census bureau reveals a notable trend in the US-China trade relationship over the past several years: America's trade deficit with China has steadily declined, reflecting fundamental changes in the bilateral economic relationship. The US trade deficit with China decreased from its peak of US$418.2bn (billion) in 2018 to US$295.4bn in 2024—a reduction of nearly 30%. China's share of the total US trade deficit fell dramatically, from 48.1% in 2018 to 24.6% in 2024, indicating that the US has diversified its trade relationships.
US exports to China fluctuated between 2018 and 2024, reaching their highest point in 2022 at US$154.1bn before declining slightly to US$143.5bn in 2024. US imports from China peaked at US$538.5bn in 2018, fell significantly to US$426.9bn in 2023, and then increased modestly to US$438.9bn in 2024.
Several factors have contributed to this declining deficit. Trade policies initiated during the previous Trump administration and continued under the Biden administration placed significant tariffs on Chinese goods, discouraging imports. Many American companies began diversifying their supply chains away from China to reduce risk, a trend accelerated by the COVID-19 pandemic. It could also be due to China's economic focus shifting more toward domestic consumption and services rather than export-led growth. There is a significant rise in alternative manufacturing hubs—Vietnam, Mexico, India, and others have captured portions of manufacturing previously done in China.
Financial markets fear further escalation which could see both countries weaponising their interconnected financial systems. When asked about possibly delisting Chinese companies from Wall Street, treasury secretary Scott Bessent ominously told Fox News, "Everything is on the table," as cited in Reuters Breakingviews.
For American multinational corporations, the stakes are high. Last year, Greater China accounted for 17% of Apple's worldwide sales and 21% of Tesla's revenue, according to Reuters. Chinese holdings of US$760bn in US treasuries add another layer of complexity, with concerns about potential bond sales contributing to market anxiety.
Financial experts are pointing to a critical difference between the two economic superpowers that could shape the trajectory of this trade conflict.
This observation highlights a key asymmetry: China maintains strict government restrictions on the flow of money in and out of its economy, giving Beijing significant control over its currency valuation and preventing sudden capital outflows that could destabilise its financial system. The US, by contrast, operates with minimal capital controls, allowing money to flow freely across borders with limited government intervention.
This difference could become relevant, if the trade conflict expands into the financial realm. While America's free-market approach to finance has traditionally been viewed as a strength, it could potentially expose the US to greater volatility if investors lose confidence or if financial markets experience additional shocks related to trade tensions. The Chinese government's ability to manage capital flows might provide it with certain defensive advantages in a prolonged economic confrontation.
According to a Reuters report, tariff hikes have sent shockwaves through China's vast e-commerce ecosystem which has built a massive business that sells directly to American consumers through platforms like Amazon. According to e-commerce services provider SmartScout, China hosts approximately half of Amazon's sellers, with over 100,000 Amazon businesses registered in Shenzhen alone generating annual revenues of US$35.3bn.
Despite the heightened tensions, there are signs that both sides recognise the need for dialogue. On the same day as president Trump's policy shift, China's state council information office released a white paper that, while critical of the US, emphasised the benefits of bilateral trade and concluded with a call to address both sides' concerns "through equal-footed dialogue and consultation."
President Trump's team says he is waiting for a call from China's president Xi Jinping, according to Reuters Breakingviews. While direct outreach from Chinese leaders is quite rare, and Beijing did not initiate the trade conflict, analysts suggest China has an opportunity to defuse a dangerous situation.
Economists warn that even with the partial rollback, president Trump's tariff policies could still reignite inflation and increase costs for American households. The remaining 10% blanket duty on almost all US imports will continue to impact consumer prices across a wide range of goods.
According to news reports, notable business leaders have also expressed concern, with Tesla's chief executive officer (CEO) Elon Musk reportedly making unsuccessful direct appeals to Trump to reverse the tariffs. Mr Musk had previously criticised Trump's auto tariffs as ‘significant’ but has not yet commented publicly on these broader import duties.
