US President Donald Trump has declared a total three-month suspension of all “reciprocal” tariffs that began at midnight, excluding those on China, marking a significant departure for a president who has consistently advocated for historically high tariffs.
However, substantial tariffs will still apply to China, the world’s second-largest economy. Trump has announced an increase in these tariffs to 125% from 104%, following China’s imposition of new retaliatory tariffs against the United States earlier on Wednesday.
Trump stated that all other nations affected by the reciprocal tariffs on Wednesday would revert to a standard 10% tariff rate.
“Based on the lack of respect that China has shown to the world’s markets, I am hereby raising the tariff charged to China by the United States of America to 125%, effective immediately,” Trump wrote in his social media post.
“At some point, hopefully in the near future, China will realize that the days of ripping off the U.S.A. and other countries are no longer sustainable or acceptable,” he added.
In remarks to journalists following the announcement, Trump noted that while the situation is not yet resolved, there is strong support from various countries, including China, which is eager to negotiate but uncertain of the best approach.
According to a White House official, Mexico and Canada are exempt from the 10% tariffs. Most goods from these countries will continue to face a 25% tariff unless they comply with the terms of the US-Mexico-Canada Agreement, which would exempt them from these tariffs.
These exemptions do not extend to specific sectoral tariffs that Trump has applied.
Wall Street showed signs of relief as Trump pulled back from other severe trade actions. The stock market responded positively, with significant gains, although the 10% universal tariff on all imports into the United States remains in effect.
The Dow Jones Industrial Average soared nearly 3,000 points, or 7.87%, on Wednesday. The S&P 500 increased by 9.5%.
The Nasdaq experienced a 12.2% surge, marking the best day for the S&P 500 since October 2008 and for the Nasdaq since January 2001, making it its second-best day ever. The Dow also recorded its best day in five years.
This market rally follows recent declines spurred by Trump’s announcement of considerably higher tariffs the previous week.
Just hours before his announcement, Trump encouraged buying stocks, declaring, “THIS IS A GREAT TIME TO BUY!!!”
He signed off his post with “DJT,” possibly referring to the Trump Media & Technology Group Corp, which is listed under the ticker “DJT.”
At that moment, DJT shares, associated with Truth Social, were down nearly 13% for the month. Following the announcement, the shares rose more than 20% on Wednesday alone.
Trump mentioned to reporters that his decision to initiate the tariff pause was partly influenced by people becoming overly critical.
He emphasized the necessity of flexibility, contrasting sharply with his and his administration’s previous statements about not deviating from his tariff commitments.
Tensions with China Continue To Escalate
The increase in tariffs on China followed Beijing’s announcement of new retaliatory tariffs of 84% on U.S. goods, effective Thursday.
The Trump administration has specifically targeted China’s trading practices.
According to Bessent on Wednesday, while it remains to be seen how China will respond, the impact on their economy is expected to be greater than on ours.
Trump seems to be intensifying pressure, hoping that President Xi Jinping will concede first, though Wendong Zhang, an assistant professor of applied economics and policy at Cornell University, suggests this might take some time.
“China has vowed to ‘fight to the end,’ and there are risks of even more escalations,” Zhang said in an email.
“China has already reduced its reliance on U.S. products, such as soybeans and other agricultural products, since the 2018-19 trade war. But this time around, Chinese leaders have the backing of a more supportive general public to stand up to the U.S. and pivot to domestic consumption.”
In announcing China’s retaliation, the State Council Tariff Commission stated, “The U.S. escalation of tariffs on China is a mistake upon mistake, severely infringing upon China’s legitimate rights and interests, and seriously damaging the rule-based multilateral trading system.”
This heightened retaliation follows multiple warnings from China that it would “fight to the end” should the U.S. proceed with further tariff impositions.
