Economists have spoken to Newsweek about President Donald Trump’s sudden decision to postpone his “reciprocal” tariffs for 90 days, offering their insights into the possible reasons for the pause and what it could mean for the future of global trade.
Why It Matters?
Economists told Newsweek that the U-turn was likely a response to the ongoing rout in the stock market, as well as the troubling selloff of U.S. government Treasurys. The administration has presented the reciprocal tariffs as a negotiation strategy which forced countries to the negotiating table in the hopes of avoiding duties on their exports.
Markets have launched a slight recovery following the announcement, while several nations have reportedly reached out to the administration already, welcoming the pause and stating their intention to engage with the U.S. on trade during the 90-day window.
What Do Economists think of Trump’s Tariff U-Turn?
Christopher Breen, Head of Economic Insight at the CEBR
“Yesterday’s row back from Trump definitely wasn’t a part of the plan,” said Christopher Breen, Head of Economic Insight at the Centre for Economics and Business Research.
Breen told Newsweek that comments from Trump following the pause “made clear” that the decision was taken in response to volatility on the stock market.
At a White House event on Wednesday, Trump said: “I think in financial markets, they change. Look how much it changed today. We went from, you know—pretty moderate today—but over the last few days, it looked pretty glum, to I guess they say it was the biggest day in financial history.”
“Movements in treasuries would have been a particular red flag as they are usually a safe haven in bear markets,” Breen told Newsweek. “When they go the other way, it usually points to potential distress.”
“I was watching the bond market. The bond market is very tricky,” Trump said during the photo op with car racing champions, in response to a question on whether the Treasurys selloff had influenced his decision.
“What happens next is anyone’s guess; perhaps Trump doesn’t know himself,” Breen added. “I expect he is still targeting an end state with deals or higher tariffs applied to most countries, but he has sensibly stepped back and given himself time to go through this process.”
Thomas Sampson, Economics Professor at LSE
“There is no evidence that this was the plan all along,” said Thomas Sampson, professor of economics at the London School of Economics. “What seems to have happened is that the administration was spooked by falling stock prices and volatility in financial markets, so they decided to pause some of the tariffs.”
Sampson questioned the administration’s claim that the high reciprocal tariffs, and the pause, were employed as a negotiation strategy to force countries to the table.
“The administration’s strategy does not make sense from a negotiating standpoint,” Sampson told Newsweek. “It has not laid out what it wants from negotiations. Instead it has alienated other countries, disrupted financial markets and increased the chances of a global recession.”
“What happens next is highly uncertain given that the administration is not following a consistent strategy,” he added. “We do not yet know if the U.S. is willing to strike deals, or what it wants from deals. The uncertainty is massive and this will act as a drag on the economy.”
Bernard Hoekman, Robert Schuman Centre for Advanced Studies
“As reported, it seems the fear of a bond market revolt was the trigger for the pause,” said Hoekman, director of Global Economics at the European University Institute’s Robert Schuman Centre for Advanced Studies.
“The rationalization by Trump officials that the rapid reversal was always the plan and/or is the mark of a master negotiator at work is not at all compelling.”
Hoekman told Newsweek that the next question is what can be accomplished through the forthcoming trade negotiations.
“What seems clear is that if the aim is to get to balanced merchandise trade, without consideration of the balance in services trade and [foreign direct investment] stocks, there is not much many developing countries can do,” he said.
“The uncertainty regarding the credibility/value of any deals remains,” he added. “The medium term implication that countries will seek diversification and deepening of trade and investment relations with countries other than the US therefore remains.”
Simon Johnson, former IMF chief economist
Johnson, former chief economist at the International Monetary Fund (IMF) told Newsweek that the 90-day pause appeared to be a reaction to the rout that had swept Wall Street and global markets since the reciprocal tariffs were announced last week, in particular “rising yields in the government bond market.”
Johnson also doubted the framing of the tariffs and the subsequent pause as a negotiation strategy, telling Newsweek: “Most of the ‘deals’ were already available; the last week’s turbulence was largely avoidable.”
“Countries will want to negotiate in good faith, to keep the U.S. happy,” Johnson added. “But the main issue now is what China does.”
In a separate conversation prior to the pause being announced, Johnson had called the tariffs a “regressive” form of tax, the greatest impacts of which he said would be felt by lower-income Americans “because they have higher import content of their consumption than higher income Americans.”
Paul De Grauwe, London School of Economics
“It’s clear that this was a dramatic U-turn driven by fear mostly about what happened in the bond market,” De Grauwe told Newsweek. “The spike in the government bonds yields led to fear of a financial crisis. Without the U-turn this would have become a Trump financial crisis.”
De Grauwe, currently the John Paulson Chair in European Political Economy at the London School of Economics, said that Trump was likely hoping to avoid an economic crash tarnishing his legacy, and that the move had “nothing to do” with his negotiating tactics.
While he said that what happens next remains unclear, De Grauwe told Newsweek that Trump will be unable to return to his original tariff plans.
“This would just bring back the risk of financial crisis,” he said. “So, he will have to compromise. I think the other countries now have better cards. There goes his superior negotiating tactics.”
Jesse Rothstein, University of California, Berkeley
“No, this was not the plan all along,” Rothstein said. “And no, neither the tariff threats nor the climb down have been good negotiating tactics.”
“It seems clear that Trump was forced to back down by the market reaction to his original tariff aggression, and the markets reacted positively because the episode demonstrated that he can be forced to back down,” he told Newsweek.
Rothstein, a professor of public policy and economics at the University of California, Berkeley, said he would be “very surprised” if any larger countries make deals “that provide any meaningful value to the U.S.”
“The backdown certainly doesn’t make good deals any more likely, and dramatically worsens Trump’s negotiating position should he actually be interested in making deals in the first place,” he added.
Peter Simon, Northeastern University
Simon, a professor of economics at Northeastern University, told Newsweek that the U-turn was a result of the panic on the stock market.
“He had no idea that the stocks would tank so quickly and so much,” Simon told Newsweek. “When his wealthy supporters were losing billions of dollars they let him know that this had to stop.”
“He even went so far as to ask the Fed Chair, [Jerome] Powell, to lower rates,” he added. “That would not have been done if the plan had always been to pause the tariffs.”
While Simon acknowledged that the reciprocal tariffs “did bring a bunch of countries to the table,” he called the move “a stupid gamble and unnecessary.”
Regarding the potential outcomes of the trade negotiations, he said that Trump is unlikely to achieve the across-the-board elimination of tariffs on U.S. imports that he has been aiming for.
“He will not get zero tariffs. The U.S. is the third largest buyer in the world, and one of the richest, and the firms here get billions of dollars in subsidies that reduce the cost of production so that they can compete with smaller, poorer countries,” Simon told Newsweek. “Tariffs from those countries on U.S. products is necessary to save their own domestic production.
“They are not rich enough to give that much money to their own companies. Tariffs will likely come down because they need the U.S. as a customer but it will cost them sales and that will not help their growth.”
However, he added that most countries “if not all” will be able to secure some sort of deal with the U.S.
“And even China will eventually come to the table,” he said. “It too needs the U.S. as a buyer. But given enough time, most countries may try to find other buyers and that will be a loss to everyone.”
Richard Baldwin, IMD Business School in Lausanne
“There are many other ways he could have gotten here with vastly less market disruption, and reinforcement of his reputation for flip-flopping and not ‘meaning what he says,'” Baldwin told Newsweek.
Baldwin, professor of international economics at IMD Business School in Lausanne, told Newsweek that Trump likely made the decision as he wanted to avoid “being blamed for single-handedly causing Global Financial Crisis II.”
“Moreover, while his trusted advisers don’t know much about the practice side of trade, they fully understand financial markets and crises,” he said. “Thus on financial markets, I think he got accurate, expert advice.”
“On trade it seems more like an echo chamber of wishful thinking.”
Baldwin said that, while Trump had “ruined America’s reputation as a reliable trade negotiator,” he may be able to secure concessions from certain countries, but that these would likely be underwhelming, based on those achieved during his first-term trade war with China.
“Some yes. All no; just not enough time,” Baldwin said, on the possibility of the countries, the tariffs of which have been paused reaching deals with the U.S.
“Moreover the president is always vague about his goals and this allows him to ‘declare victory and go home’ as they used to say about the U.S.-Vietnam war,” he said. “I do believe most foreign nations would be willing to make some reciprocal deals, some concessions to the U.S., so, I suspect he’ll announce some wonderful deals even if the commercial gain from them is small.”
He added that nations will be keen to ink deals before the 90-day pause ends or before Trump again changes course.
“If nothing else, it’ll keep them out of the doghouse in the meantime,” he told Newsweek. “Whether they are willing to commit to substantial concessions with a gun at their head is less certain.”
What Happens Next?
Reciprocal tariffs will be reduced to a baseline rate of 10 percent for 90 days, which the administration has said will give America’s trading an opportunity to engage in negotiations. China, having retaliated with its own tariffs on American goods, will now face an increased tariff rate of 125 percent.
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