Just when we thought things were quieting down, former President Donald Trump dropped another big announcement. He announced a 90-day stay on increased tariffs to cover 56 nations and the European Union. This decision comes in direct reaction to the recent spike in US bond yields. Leading economists share this concern and investors are right to be spooked by what it means. The tariff pause, therefore, serves as a smart trade war chess move. All this comes at a time when China is dumping US treasuries at record levels.
As it stands, the announcement has already had a pronounced impact on the financial markets. The Nasdaq composite saw the largest increase at 12%, showing that investors were bullish on Trump’s forthcoming tariff moves. European markets have skyrocketed in hopes after this temporary stay. There is widespread investor relief at the prospect that perhaps this temporary reprieve signals the establishment of a more detailed, permanent trade agreement. The European Union now has a 10% baseline tax on imports with the new guidelines. This tax will have a big impact on future trade flows, with longer-term consequences.
US manufacturers have been quite reactionary with these trends, having already begun stockpiling over the last months’ time. This strategy would blunt some of the predicted inflationary pressures in the near future. For one, traders are on high alert. They will be looking intently at the next US Consumer Price Index (CPI) report for evidence of a return of price pressures.
Although the 90-day tariff pause provides some temporary relief, it fails to remove the fog of confusion and future volatility over US-China relations. Dumping US treasuries would be one of the most effective countermoves available to China in our escalating trade war. This action leaves many critical questions unaddressed about the long-term impacts to both economies.
Analysts are looking for core CPI inflation to continue moving downward toward the 3% level from a year earlier. This comes on the heels of persistent worries about the growing tariff crisis. This easing should continue to shed light on the inflation landscape as the impacts of both stockpiling and tariffs play out.
At the open, the market surged, adding more fuel to early bullish momentum. With uncertainty over tariffs and the ongoing trade negotiations still present, investors are pulling back. The last-minute reprieve has been praised by many. It is only a stopgap in a highly dynamic and uncertain economic environment.
Traders and analysts are waiting to see what happens next. The need for crude oil – their overarching issue – is a sticking point for them. Add volatility in crude prices into the mix and the economic picture becomes even more complex. This is particularly important given that 14% of all US imports come from China.