The News
US stocks rebounded briefly Tuesday on hopes that the White House would strike deals with America’s trading partners to delay, reduce, or remove punishing tariffs.
US President Donald Trump said he had talked with South Korea’s acting president, a day after his administration said it was readying trade negotiations with Japan. Treasury Secretary Scott Bessent said 70 countries have sought negotiations, suggesting there could be “some good deals,” with part of the calculus being that “some part of the tariffs stay on.”
China, however, vowed to “fight to the end” after Trump threatened to hike tariffs on Beijing even more. Uncertainty remains over what Trump will do next, as well as which countries could walk away with a deal, and which might stay locked in a trade war with Washington.
SIGNALS
Why different economies respond differently to tariffs
While countries like Vietnam, Israel, and Japan that have fewer retaliatory tools are offering to lower trade barriers, those with the “most to lose” — like China and the EU — “are retaliating, betting that Trump’s negotiating position will weaken as the stock market continues to fall and price hikes hit Americans,” Semafor’s Liz Hoffman wrote. Former Obama economic adviser Jason Furman told Hoffman that “it’s more likely that tariffs go down than up from here, but that they stay much higher than people would have imagined even two months ago.” Even if Trump backs down, “he will have succeeded in shifting the debate on tariffs and in building uncertainty, which itself can act like a tariff,” Furman wrote in the Financial Times.
Lack of clarity abounds, but off-ramps available
Some investors are still holding out hope for the so-called “Trump Put” that underpinned his first term, but because tariffs are “such an integral part of [his] psyche,” most investors are betting that “any pain level likely to cause Trump to change course” remains a long way away, Reuters reported. Striking trade deals “would by definition fall short of the complete overhaul of the global trading system the president is after,” CNN’s Stephen Collinson wrote. Still, Trump has several off-ramps that would appease voters and markets, an expert at the center-right American Enterprise Institute think tank argued: He could declare victory after countries like Japan offer concessions, or pause the tariffs and instead boost revenue through tax reform.
China digs in, raising prospect of a lasting decoupling
China’s refusal to back down in the face of Trump’s threats to further hike tariffs, sets the stage for “long-term economic pain,” one expert told the BBC: Beijing wants to avoid the appearance of looking weak by removing duties against the US, and “it would also give leverage to the US to ask for more. We’ve now reached an impasse.” Chinese analysts believe Washington is more likely to succumb to the economic tumult of a trade war, The New York Times wrote. But to endure a prolonged trade conflict, China will need to do more to prop up its beleaguered economy, and “will have to bite the apple of decoupling,” The Economist wrote.