In the volatile realm of international trade and economic policy, the past few days have been a veritable whirlwind. President Donald Trump's tariff policy, which had been steadily progressing, took an unexpected turn just hours after implementation.

For weeks, Trump remained resolute in his plans to impose steep new tariffs on imports. His administration's stance was clear: these tariffs were a means to address what they perceived as unfair trade practices and reduce the US trade deficit. On April 2, Trump shocked the world by announcing the imposition of the highest US tariffs in over a century. These tariffs were not a one-size-fits-all approach; instead, they were customized for each trading partner, corresponding to the size of their trade surplus with the US.

Just after midnight on April 9, the so-called "reciprocal" tariffs on imports from nearly 60 countries and the European Union came into effect. However, the financial markets did not take the news well. Global stock markets had already been on a multiday decline leading up to this moment. The implementation of the tariffs seemed to be the tipping point, causing further turmoil. Long-term yields in the bond market were soaring. The 10-year Treasury witnessed its largest three-day jump since 2001.

A mere 13 to 14 hours after the tariffs took effect, Trump executed a major policy reversal. He announced a 90-day pause on the "reciprocal" tariffs for countries that had not retaliated. In a social media post on his Truth Social site, Trump stated, "Over 75 countries have contacted our representatives, seeking to negotiate solutions regarding trade, trade barriers, tariffs, currency manipulation, and non-monetary tariffs. Since these countries have not, at my strong suggestion, retaliated in any way, I have authorized a 90-day pause."

Reasons for the Pause

• Market Turmoil: The bond market's reaction was a significant factor. Trump admitted to closely monitoring the bond market. Soaring yields meant that voters, who had returned him to the White House in part due to inflation concerns, now faced both increased prices (due to tariffs) and higher borrowing costs. "People were getting a little queasy," Trump said. The chaos in the financial markets was a clear indication that the tariffs were having an immediate and negative impact on the economy.

• Business and Investor Pressure: Business leaders and investors had been vocally opposed to the tariffs. In the days leading up to the pause, Trump heard concerns from his wealthy allies. Elon Musk, his billionaire adviser, had been criticizing the tariff decision. Bill Ackman, the hedge fund manager who had backed Trump's campaign, had proposed the idea of a 90-day pause on the expanded tariffs to allow for deals. Senator Lindsey graham of South Carolina also called the president, relaying his concerns about the tariffs' impact and suggesting that Trump engage in negotiations with other countries.

• Outreach from Other Countries: Trump's post also indicated that the influx of outreach from other countries, making "the right kind of offers," played a role. Commerce Secretary Howard Lutnick said that countries were starting to offer concessions that had not been on the table previously, including addressing non-tariff trade barriers. "The number of calls we received was astonishing," Lutnick said.

What Tariffs Were Paused?

Imports from the countries subject to the pause will now be subject to the flat 10% duty that Trump imposed on goods from all foreign countries starting April 5. This represents a significant reduction from the customized "reciprocal" tariffs initially imposed. However, China, which had responded to Trump's tariffs with equal retaliatory measures, was not included in the pause. Instead, Trump announced an increase in levies on Chinese goods to 125% from 104%.

The Aftermath and Market Reaction

The stock market reacted exuberantly to the news of the tariff pause. The S&P 500 jumped 9.5%, marking its largest single-day increase since 2008. The Nasdaq also had a remarkable day, with its gain initially expanding to 9% and eventually closing with a significant increase. Oil prices, which had declined in recent days due to fears of a global economic slowdown, also rebounded. The bond market also saw some changes. The 10-year Treasury yield, which had been on a sharp upward trend, eased slightly after the announcement.

What Happens When the Pause Ends?

The future remains uncertain. Trump's post suggested that the pause is an opportunity for US trading partners to reach deals to avoid the tariffs. It's possible that when the 90-day pause ends in early July, countries that have not negotiated a deal with the US will once again face the tariffs that were briefly imposed on April 9. However, Trump could also announce another deferment, as he has done in the past. For example, he twice postponed the imposition of tariffs on some imports from Mexico and Canada.

The Broader Implications

This sudden policy reversal highlights the fluid and unpredictable nature of Trump's economic decision-making. The initial tariffs had already begun to disrupt global supply chains, with companies like Volkswagen, Nissan, and Jaguar Land Rover adjusting their operations in the face of the new trade barriers. The pause offers a temporary respite, but the underlying issues that led to the tariffs in the first place remain unresolved.

Moreover, the situation with China remains tense. The increased tariffs on Chinese goods will continue to impact US consumers and businesses that rely on Chinese imports. The global economic outlook, which had been clouded by the initial tariff announcements, now has a glimmer of hope with the pause, but the uncertainty surrounding Trump's next moves means that the future is far from clear.

In conclusion, the past few days have been a rollercoaster in the world of trade policy. Trump's tariff pause is a significant development, but whether it will lead to more stable and mutually beneficial trade relations remains to be seen. The coming 90 days will be crucial as the US and its trading partners navigate the complex landscape of trade negotiations.