(CN) — With an escalating global trade war clobbering financial markets, U.S. President Donald Trump on Wednesday abruptly announced a 90-day pause on many tariffs and lowered most import duties, but he kept tensions heightened by raising tariffs even higher on goods from China.
Trump’s pause was met with relief by U.S. stock and bond markets, which were getting hit hard as investors fled from American assets throughout the day. Trump and his White House aides sought to portray the pause as a win, arguing their radical tariffs policy forced many countries to seek new trade deals with the U.S.
However, the threat of further escalation remained high with Trump hitting out at China and saying most goods from around the world still face a 10% tariff once the pause ends. He made his announcements in a post on Truth Social, his social media platform.
Before Trump’s announcement, the trade war was rapidly intensifying after the European Union and China both said on Wednesday they were slapping new tariffs on American goods.
After Trump raised tariffs on Chinese goods to 104% on Tuesday, Beijing hit back by raising duties on American goods to 84%. On Wednesday afternoon, Trump blasted Beijing for a “lack of respect” for retaliating and raised tariffs to 125% on Chinese goods.
Earlier Wednesday, the EU announced it was placing duties of between 15% and 25% on a variety of American goods, including cigarettes and motorcycles, in response to tariffs on steel and aluminum announced by Trump in February. The EU is considering to hit back even harder against the sweeping tariffs Trump announced on April 2, what he dubbed “Liberation Day.” The EU was hit with across-the-board 20% duties, though it appeared from Trump’s latest announcement that the EU now faces a 10% tariff.
The tit-for-tat trade battle was a major source of worry for investors and markets with U.S. government bonds getting hit hard Wednesday, an indication of growing uncertainty over Trump’s radical tariffs policy.
Late Tuesday and Wednesday saw a dramatic sell-off of U.S. government bonds, normally a safe haven for investors. The U.S. Treasury market is worth about $28 trillion and acts as a stabilizer for the global financial system, but the sell-off signaled unease with American assets and worries over the risk of the U.S. entering a recession. By Wednesday afternoon, trade in U.S. bonds had calmed.
Earlier Wednesday, Trump insisted his policy was working.
“BE COOL! Everything is going to work out well. The USA will be bigger and better than ever before!” he posted on Truth Social, his social media platform.
The U.S., China and the EU make up the world’s three biggest markets and this intensifying trade war could trigger a global recession, economists warn.
China and the EU, led by export heavyweight Germany, possess massive trade surpluses with America and Trump has set his sights on reducing these surpluses.
Trump and his advisors believe they can revive American manufacturing, bring down the U.S. debt, cut taxes and shore up the economy by erecting a tariffs fortress, an approach that is upending the global trading system. America has a massive and unparalleled trade deficit, which reached $918 billion in 2024, according to U.S. data.
All three economic powerhouses risk getting hurt badly in this trade war, but China and the EU — due to their dependence on exports — potentially face the biggest losses because the U.S. is a very lucrative market for them.
The tariffs announced Wednesday by the EU target U.S. soybeans, fruit, motorcycles, beauty products, clothes, dental floss and other items. They were seen as slightly more mild than expected.
Before Trump’s reversal on Wednesday, the EU was engaged in a much more consequential debate over how to respond to Trump’s threats to levy 20% tariffs. EU leaders are considering hitting back at American tech giants, but there are deep concerns over triggering an even harsher response from Trump.
The trade relationship between the EU and the U.S. is the largest in the world, standing at about 1.5 trillion euros ($1.55 trillion) in 2023 when both goods and services are combined, according to EU figures.
But the EU sends far more goods — cars, machines, wine, bicycles, pharmaceuticals and more — to the U.S. than it imports from America, and that is Trump’s main bone of contention. In 2024, the EU had a goods surplus worth about $235.6 billion, according to data from the U.S. Census Bureau.
However, America’s trade deficit shrank to $125 billion in 2023 when services, including financial, technological, legal, accounting and engineering work, were taken into consideration, U.S. data shows. The U.S. had a $76.5 billion surplus when it came to services sold in the EU, U.S. figures show.
Added to that are huge investments European and American companies have made in each other’s markets, amounting to more than $5 trillion. American companies have invested about $2.6 trillion in the EU, and EU companies have sunk about $2.4 trillion into the U.S.
The International Monetary Fund has warned a trade war between the U.S. and EU could wipe out as much as 7% of global GDP due to the sheer volume of trade across the Atlantic Ocean.
Courthouse News reporter Cain Burdeau is based in the European Union.