SINGAPORE: “To the many investors coming into the United States and investing massive amounts of money, my policies will never change,” President Donald Trump posted on Truth Social days after announcing “Liberation Day” tariffs on Apr 2.
So much for that. His tariff policy did not last a week, let alone a lifetime. Just 13 hours after sweeping “reciprocal” tariffs came into effect on Wednesday (Apr 9), Mr Trump reversed course, rolling out a 90-day pause.
This still leaves the flat 10 per cent “universal” rate for most countries. And the tariffs on China remain.
The markets have accomplished what a small band of Republicans in the Senate and a small but growing voice in the investment community could not – get Mr Trump to reverse a policy that would harm the US.
Before the pause, US equities shed trillions. Bonds, essentially loans to the US government, sold off, too – yields spiked to 4.5 per cent on Wednesday morning.
That’s when Mr Trump blinked.
Bonds are usually seen as a safe haven, where investors park money when markets are uneasy because they see the chances of the US government defaulting on the loan as inconceivable.
“I saw last night where people were getting a little queasy,” he said. “I was watching the bond market. It’s very tricky.”
Almost as soon as Mr Trump reversed course, the markets soared.
Mr Trump has been able to bend many to his will. But the market sent a clear message: Push too far, and it pushes back.
For all his bluster and unpredictability, markets remain the strongest guardrail against unchecked presidential power – a force no administration can ignore for long.
“They can both be true,” Mr Trump said when asked whether the tariffs were permanent or up for negotiation.
The markets never bought it.
If the tariffs were to force manufacturing to the US, Mr Trump would not eliminate them, no matter what trading partners offered or how markets reacted.
And if the tariffs were to reciprocate duties and other non-tariff barriers on US exports, they should have only been lifted once deals were achieved. None has been.
Turns out we still have no idea the principles underpinning his “America First Trade Policy”.
“When you have a president who can simultaneously and confidently hold conflicting thoughts in his head, it’s not a surprise that he will make policy changes in an instant,” Dr Deborah Elms, Head of Trade Policy at the Hinrich Foundation, told me.
China saw no relief, its additional rate jumping to 125 per cent instead.
Earlier increases – on steel and aluminum, auto parts, and select goods from Canada and Mexico – remained untouched.
The market uptick seems to indicate people believe those tariffs will either be eliminated or come down, too. But this might be where the market misses the mark for now.
The US tariffs on China, coupled with Chinese retaliatory ones, will cause the greatest economic harm. Yet the markets seemingly do not take into account that these tariffs have not been paused.
“China has defied Trump on two things,” Mr John Holden, who leads geostrategic consultancy McLarty Associates’ China practice, explained to me. “First, it has not taken the action on fentanyl Trump demanded. Second, it has quickly and defiantly retaliated tit-for-tat against his tariffs”.
Dr Taimur Baig, Managing Director and Chief Economist at DBS, agrees that the relief over this postponement could be short-lived, as “more sectoral tariffs, including on pharmaceuticals and semiconductors, could be forthcoming”.
Now, will other countries follow China’s lead in responding to tariffs in kind or fall for Mr Trump’s trap of his pausing tariffs on those countries that have not retaliated?
Governments should not take the bait. Certainly, their efforts to respond to the tariffs should not stop because of the pause.
We are in the most complicated macro and geopolitical environment of our lifetimes. While the market guardrail may have kicked in this time, it did so even with the most economically damaging tariffs remaining.
Investors and government officials alike should not be so confident it will continue to do so.
Steven Okun serves as CEO of APAC Advisors, a geostrategic and responsible investment consultancy based in Singapore. He served as Deputy General Counsel at the US Department of Transportation in the Administration of President Bill Clinton.
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