After tariff climbdown, world asks: Is it method or madness?

Governments that held back in reaction to Trump’s tariffs see the pause in the trade war as vindication.

Economists stressed that a high degree of uncertainty remained despite the 90-day pause, which would negatively affect investment, growth and inflation expectations going forward. Picture: Adek Berry / AFP

Relief spread around the world on Thursday after President Trump suspended enforcement of some of his global tariffs, but the U-turn left governments pondering how to approach a US that has become nearly impossible to predict.

Deciphering the reasons for the swift climbdown and how much it was premeditated or imposed by the market convulsions of the past few days could be key in determining how world leaders approach the White House in the coming negotiations.

Asian markets outside China cheered news of the pause, with Japan’s Nikkei closed up by more than 9 per cent. In Europe, the German DAX index shot up more than 8 per cent at the opening before paring back some of its gains. The French CAC 40 and the British blue-chip FTSE 100 were up 4.9 per cent and 3.9 per cent , respectively by midday local time.

US President Donald Trump speaks after signing an executive order in the Oval Office of the White House on April 9, 2025 in Washington, DC. (Photo by SAUL LOEB / AFP)

The rally mirrored powerful gains in the US late Wednesday after Trump said he would pause most of his higher, so-called reciprocal tariffs for 90 days while keeping a baseline duty of 10 per cent in place for virtually all imports. The S&P 500 closed 9.5 per cent higher—its best day since October 2008—after posting steep losses earlier in the week, while the tech-heavy Nasdaq ended up more than 12 per cent .

After slapping import levies on specific sectors and regions, Trump unveiled global tariffs—some of them punishingly high—on almost all countries on April 2, which he dubbed “liberation day.” The move caused havoc on global markets, not just pushing down stock prices but also sparking a selloff in US treasuries in a development that surprised and worried analysts.

Government borrowing costs, which also surged violently outside the US, retreated late Wednesday and into Thursday, but they remained elevated on concerns that the levies will remain in effect and lead to higher inflation.

Countries and regions that had declined to escalate and either held their fire, postponed their reaction or announced only moderate countermeasures to the tariffs, saw their cautious approach vindicated after the US appeared to blink.

The European Union’s executive body, which governs trade policy for the entirety of the bloc, said Thursday that it would suspend retaliatory tariffs against the US for 90 days. The EU had said before Trump announced his pause that it would hit back against US steel and aluminum tariffs with duties on about 21 billion euros worth of American products, equivalent to around A$38 billion. But it had yet to respond to the across-the-board 20 per cent tariffs imposed by Trump last week on most goods from the bloc, or to Trump’s 25 per cent automotive tariffs announced earlier.

“We want to give negotiations a chance,” European Commission President Ursula von der Leyen said in announcing the EU’s pause, adding that the tariffs would kick in if talks aren’t satisfactory. The EU is continuing its preparatory work on possible further retaliatory measures and all options remain on the table, she said.

China, which has matched the US tariffs blow by blow, was left out of the 90-day pause. Instead, Trump wrote on Truth Social that he had raised the tariff imposed on the country to 125 per cent.

The EU, which governs trade policy for the entirety of the bloc, said before Trump announced the pause that it would retaliate against US steel and aluminum tariffs with duties on about 21 billion euros worth of American products, equivalent to around $23 billion. But it had yet to respond to the across-the-board 20 per cent tariffs imposed by Trump last week on most goods from the bloc, or to Trump’s 25 per cent automotive tariffs announced earlier.

A commission spokesman said the bloc would “take the necessary time” to assess the situation and consult before determining its next steps, leaving open whether its retaliation to the steel tariffs would kick in as planned on April 15.

Japanese stocks rebound after the partial suspension of the US tariffs. Picture: AFP

The EU has offered the US to mutually abolish all tariffs on industrial goods, but Trump rejected the proposal, saying Europe should also buy $350 billion worth of US energy. Dan Jørgensen, the EU’s energy commissioner, told the Financial Times on Thursday that the bloc was looking to increase purchases of US natural gas.

The US climbdown was “a direct consequence of the Europeans’ united approach,” said Friedrich Merz, who is in line to become Germany’s next chancellor, late Wednesday. “We are ready to talk, but we are also ready to defend our interests. That’s the right approach.”

However, Merz said the president’s unpredictability had caused “maximum uncertainty in the US Trump is now facing massive criticism in his own ranks and from business. That’s why we need to be all the more reliable, clearer and better at the European level.”

Economists stressed that a high degree of uncertainty remained despite the 90-day pause, which would negatively affect investment, growth and inflation expectations going forward.

“Bond market discipline once again has shown itself to be a powerful tool for governments to reorient their approach,” Nichola James, managing director of Global Sovereign Ratings at credit rating agency Morningstar DBRS, said in a note on Thursday. “What we are looking at now though is not an abandonment of fundamental US policy, but an alternative pathway to achieve it, and in this environment, damaging uncertainty for companies continues.”

One question facing officials who are brainstorming their strategy for the next three months is whether the tariff U-turn is a sign that Trump was cowed by the powerful market upset—a weakness they might exploit in the coming negotiations. Or was the US president’s willingness to court a full-blown financial crisis evidence he would go right to the brink to secure better trade terms for his country.

“Our working assumption now will be that, cowed by the market response, Trump will repeatedly extend the ‘pause’ meaning that this will end up looking a lot like the 10 per cent universal tariff that he campaigned on,” Paul Ashworth, chief North America economist at Capital Economics, wrote in a Wednesday note. “In return, other countries will offer minor concessions on their own tariffs and trade practices.”

Whether the events of the past week showed method or madness, countries that were singled out for some of Trump’s highest tariffs seized on the pause as an opportunity to rush into negotiations about a settlement that would lift the threat of levies permanently.

Deputy Prime Minister Richard Marles said Australia would look to strengthen trade ties to the EU, the UK and India. Picture: Brendan Radke

Vietnam’s deputy prime minister was already in Washington on Wednesday to meet the US trade representative and members of Congress when news of the climbdown dropped. The country, which has become a base for global manufacturers seeking a cheap alternative to China to produce their goods, was hit with a 46 per cent tariff last week but will now face a 10 per cent levy like most other countries. Vietnam’s VN stock exchange index closed up nearly 7 per cent on Thursday.

A spokesman for the Japanese government, which had initiated talks with the US before the pause, said “we will continue to strongly urge the US to revise its measures,” noting that 25 per cent tariffs on cars and steel remain in place.

Taiwan Premier Cho Jung-tai said his government would negotiate with the US over the next 90 days, comparing the emotional ups and downs of the tariff situation with going from a sauna to a cold shower.

South Africa, the continent’s most advanced economy, said it was seeking more talks with the US following the tariff pause. “Our team is due to have an interface with the U.S. Embassy officials,” Trade and Industry Minister Parks Tau told a local radio station in Johannesburg. “We will seek to engage with them in order to normalize trade once again.”

Trump had imposed a 31 per cent tariff on US imports from South Africa. The US is South Africa’s largest trading partner after China.

While they talk to the US, governments and businesses are likely to use the pause to strengthen their defenses should the trade war flare up again after the pause expires.

“Europe continues to focus on diversifying its trade partnerships, engaging with countries that account for 87 per cent of global trade,” von der Leyen said in her statement, adding that the bloc would also work to lift remaining obstacles to trade within its own market.

Australia would look to strengthen trade ties to the EU, the UK and India, Deputy Prime Minister Richard Marles told Sky News. But he rejected a call from the Chinese ambassador for Australia to link up with China against the US. “We won’t hold hands with China,” he said.

The Wall Street Journal