The Hindu: Published on 10th April 2025:
Why in News?
U.S. President Donald Trump has made a dramatic shift in his global trade policy by announcing a 90-day pause on increased tariffs for most countries, while simultaneously increasing tariffs on Chinese goods to 125%. This decision marks a significant development in the ongoing U.S.-China trade war and has had a major impact on global financial markets.
What Happened:
- President Trump paused new tariff hikes for most countries for 90 days, citing a willingness by over 75 nations to negotiate rather than retaliate.
- Despite this, he raised tariffs on Chinese goods to 125% citing China’s "lack of respect" for global markets and continued economic exploitation of the U.S.
- A flat 10% tariff on all other countries, introduced earlier, remains in effect.
Focus on China:
- Just before the 125% hike, tariffs on Chinese goods had already been raised to 104%.
- China responded with retaliatory tariffs of 84% on U.S. goods.
- Trump accused China of “ripping off” the U.S. and declared that this behavior would no longer be tolerated.
- The escalation reflects a full-blown confrontation between the world’s two largest economies.
Global Reactions:
- European Union (EU) responded with counter-tariffs worth over €20 billion on American products like soybeans, motorcycles, and cosmetics.
- However, the EU did not react to the latest 20% U.S. tariff hike effective from midnight on Wednesday.
Impact on Markets:
- Wall Street reacted positively to Trump’s pause announcement:
- S&P 500 surged by 6% immediately.
- This reversed a week-long slump caused by market instability.
- European and Asian markets, which had earlier plunged, showed signs of calming.
- U.S. bond yields rose, signaling uncertainty, as investors shifted away from government securities.
Background Context:
- Trump had earlier announced a baseline 10% global tariff effective from Saturday (called it “Liberation Day”).
- Additional tariffs were applied to China and the EU starting Wednesday, based on their trade surpluses with the U.S.
- The tariffs were part of a broader attempt to reshape global trade terms in favor of the U.S., under Trump's "America First" policy.
Negotiation Diplomacy:
Trump's announcement came after claims that multiple countries were actively engaging in trade negotiations with the U.S.
Japan and South Korea were mentioned among nations sending delegations to Washington for tailored deals.
Significance & Implications:
Shift in Trade Policy Strategy:
Trump's partial rollback signals pressure from global markets and an attempt to stabilize economic turbulence.
Targeted Isolation of China:
While most nations are spared further penalties, China faces intensified economic pressure, indicating a strategy of economic containment.
Volatility in Markets:
The rapid rise and fall in stock indices highlight the fragile investor confidence and sensitivity to trade policy shifts.
Global Economic Rebalancing:
This event underscores the ongoing realignment of trade alliances and multilateral negotiations to avoid long-term economic fallout.
Diplomatic Balancing Act:
Trump's dual strategy of engagement with some and pressure on others reflects the complexities of modern economic diplomacy.
