US President Donald Trump on Wednesday announced a 90-day pause on ‘discounted' reciprocal tariffs he announced on April 2 for all countries except China. Instead, Trump increased tariff to 125% on China, up from the previously declared 104%, “effective immediately” due to the “lack of respect that China has shown to the World's Markets.”
Trump said that over 75 countries had negotiated and not retaliated against the tariffs announced. During the pause, a significantly lower reciprocal tariff of just 10 per cent would be in effect.
What made Trump announce the pause?
Mounting pressure from investors
Donald Trump for the last few days has been facing pressure from Republicans and business executives following extensive sell offs in the US stock market. They insisted him to halt tariffs, given the fear of a major trade war. Investors said that tariffs announced can trigger a global market meltdown, and raised concerns of a looming global recession.
Trump said that people are “getting a little bit afraid”. “I thought that people were jumping a little bit out of line. They were getting yippie,” he said.
Sharp sell-off in bond markets
Another reason for Trump's reversal is the steep sell- off in US government bond markets. US Treasury Secretary Scott Bessent and White House officials raised the increasing sell-off concerns in bond markets.
"The bond market is very tricky, I was watching it. The bond market right now is beautiful. But yeah, I saw last night where people were getting a little queasy. We didn't have access to lawyers, or it was just wrote up. We wrote it up from our hearts, right? It was written from the heart, and I think it was well written too, but it was written from the heart," Trump said.
Isolate China
Axios, citing an official, reported that the president and his advisers agreed that China's decision to impose retaliatory tariffs on the US gave them an opportunity to pause the tariff hikes on other countries as a token of friendship and isolate China.
The increase in US tariffs is expected to hit the Chinese economy, with Goldman Sachs' economists trimming their 2025 growth forecast to 4% from 4.5% on Thursday.
Axios also reported that US economic advisers will now engage in a country-by-country negotiation process that will take months. However, Trump will make the final call on each deal.
Meanwhile, sources told moneycontrol that India is trying to ink a partial bilateral trade agreement (BTA) with the US before the end of 90-day pause.
A source said that the Centre will follow a three-pronged strategy to improve trade relations and protect its domestic industry.
First front: US trade deal
The initial deal is expected to cover essential and non-sensitive products. The government is also considering a reduction of duties on several items imported from the US. In response, the US is likely to offer New Delhi some permanent tariff relief.
Second front: EU and UK trade agreements
The government is also eyeing to lock the free trade agreements with the European Union and the United Kingdom as soon as possible. The negotiations have already reached an advanced stage.
Third Front: Preventing dumping by China
To safeguard domestic markets, India is preparing to implement a stringent mechanism to prevent dumping by countries such as China. This includes the strict enforcement of the Quality Control Order (QCO) to effectively curb Chinese imports. An inter ministerial group has also been formed to look into these aspects and take quick actions.