Trump Retreats on Tariffs — but Hits China Again

Stocks shot higher after Trump hit pause on his latest tariffs.
Reuters
By Yuval Rosenberg and Michael Rainey

What a Wednesday! President Donald Trump hit pause on his latest round of tariffs, and House conservatives hit pause - at least for a moment - on the budget outline for Trump's legislative agenda. Here's what's going on.

Trump Pauses Some Tariffs for 90 Days - but Not for China

President Donald Trump hit the pause button on his latest round of higher tariffs Wednesday, reducing import taxes on goods from most countries to the new basic minimum of 10% for the next 90 days. China was a notable exception, though. Instead of reducing tariffs on Chinese goods, Trump raised them, increasing an already high 104% tariff rate to 125%, effective immediately.

The suspension caused a huge sigh of relief both on Capitol Hill and Wall Street, sparking a massive rebound in stocks, with the S&P 500 rising 9.5%, the biggest one-day gain since 2008 and the third largest increase since World War II. The Dow Jones Industrial Average soared 2,962 points, or 7.9%, while the tech-heavy NASDAQ 100 surged 12%.

We meant to do that: Trump administration officials claimed the pause in the tariff war was part of a premediated plan aimed at encouraging the renegotiation of trade agreements. Treasury Secretary Scott Bessent said the delay had been Trump's "strategy all along," while Press Secretary Karoline Leavitt chided skeptical reporters, telling them they "clearly missed" Trump's "The Art of the Deal" and "failed to see what President Trump is doing here."

Trump, however, indicated that the recent alarming plunges in the global markets played a role in his decision to delay the latest round of extraordinarily high tariffs on trading partners around the world. Treasury yields had surged, suggesting investors who traditionally sought out U.S. bonds when seeking safety were now looking elsewhere.

Asked why he decided to pause, Trump said things "looked pretty glum" over the last few days. "Well, I thought that people were jumping a little bit out of line. They were getting yippy. They were getting a little bit afraid," he said.

Trump's critics offered a different take. Senate Minority Leader Chuck Schumer said the president "is feeling the heat from Democrats and across America about how bad these tariffs are." He added that Trump "is reeling, he is retreating, and that is a good thing."

Either way, Trump officials said they will start holding talks with the more than 75 nations they say have contacted them seeking new trade deals. "Each one of these solutions is going to be bespoke, it is going to take some time, and President Trump wants to be personally involved," Bessent told reporters. "That's why we're getting the 90-day pause."

Still clashing with Beijing: China on Wednesday announced that it was raising its own tariff on U.S. imports to 84%, up from 34% previously, calling Trump's decision to add another punitive tariff on China a "mistake upon a mistake."

Trump said on his social media platform that he was raising the duties on Chinese imports to 125% due to "the lack of respect that China has shown to the World's Markets."

Referring to China as a "bad actor," Treasury Secretary Scott Bessent said China is the central focus of Trump's trade initiatives. "China is the most imbalanced economy in the history of the modern world, and they are the biggest source of the U.S. trade problem - and indeed, they are a problem for the rest of the world," he said.

The other two largest trading partners of the U.S., Mexico and Canada, are also under different tariff rules, and Trump's pause will not impose a 10% tariff or change the other tariffs previously announced on the pair. Although there appeared to be some uncertainty on what the rules for the U.S. neighbors are at the moment, The Wall Street Journal reports that they are still subject to 25% tariffs on goods not covered by the USMCA trade agreement, as well as the 25% tariffs on steel, aluminum and foreign autos.

Experts react: Investors were delighted by the pause in the tariffs, and analysts at Goldman Sachs said they are withdrawing their forecast of a recession this year. "This is the pivotal moment we've been waiting for," said Gina Bolvin, president of Bolvin Wealth Management Group, per CNBC. "The immediate market reaction has been overwhelmingly positive, as investors interpret this as a step toward much-needed clarity."

But the pause does not provide anything like a final answer to how Trump's trade policy will play out. "It's still too early to signal an all clear," said Dave Sekera, Morningstar's chief U.S. market strategist. "Trade negotiations have yet to start and once they do, there will be positive and negative headlines as each party positions itself to extract the maximum amount of concessions possible."

Diane Swonk, chief economist at KPMG, said the Trump trade war has already hurt the economy, and remains a threat. "This is nuts. Damage done. Market relief is a head fake, unless the administration makes a major course correction," she told The New York Times. "Uncertainty is its own tax on the economy."

Some tax experts noted that even though some of Trump's highest tariffs have been paused, the new baseline tariffs are high nevertheless, and the trade war on China continues. "Folks, a 10% broad tariff on everything plus 125% on China, is a 25pp increase in the effective tariff rate, even accounting for USMCA exemptions," said economist Ernie Tedeschi of the Yale Budget Lab.

Erica York, senior economist at the business-friendly Tax Foundation think-tank, noted the same thing. "Paging everyone: a 10% universal tariff plus higher on China is still a massive escalation!"

That massive escalation, along with China's response, will have a noticeable effect on all kinds of consumer products, Cornell economics professor Wendong Zhang told the Times. For example, 73% of smartphones, 78% of laptops and 77% of toys are made in China, Zhang said, and finding new suppliers will take considerable time and likely involve significant price increases.

Trump, GOP Leaders Scramble to Find "Yes" Votes on Budget Bill

President Trump and House Republican leaders pressed conservative holdouts Wednesday to help pass a Senate-approved budget blueprint needed to enact Trump's legislative agenda. As the vote neared Wednesday night, it remained unclear if the pressure would work.

The House voted 216-215 largely along party lines on Wednesday afternoon to clear a procedural hurdle. Three Republicans joined with Democrats to vote against advancing the plan, and conservatives said many more were prepared to oppose the resolution in a final vote, leaving it unclear whether the Republican leaders could change enough minds. Earlier in the day, House Speaker Mike Johnson told reporters he believed they would get there. "Eventually we will," he said.

Conservatives in the House said they wanted to be sure that the legislation that gets written will include spending cuts more in line with the $1.5 trillion or more that the House outline requires rather than the $4 billion floor set by the Senate instructions. They made clear that they did not trust the Senate. "$4 BILLION in cuts compared to the House's baseline of $1.5 TRILLION is a slap in the face, so let's get serious!!" Rep. Ralph Norman of South Carolina wrote in a post on X. "It's time for Republicans to face the truth. We've got an arithmetic problem we've got to solve!"

Some Republicans also oppose the "current policy baseline" accounting methodology used by the Senate to zero out the cost of renewing $4 trillion in tax cuts.

Members of the House Freedom Caucus reportedly met with Senate Republican leaders to lock down commitments on spending cuts. "It's a group that's collaborating on getting things in order," Norman said, according to Politico. "I think if it comes together, we'll vote for it. If it doesn't, we won't."

Trump lobbied hard this week for the holdouts to fall in line. He met with some at the White House on Tuesday, then pushed the plan in remarks at a Tuesday evening fundraiser for the National Republican Congressional Committee. "You just gotta get there," he said to Republicans who might still have reservations. "Close your eyes and get there. It's a phenomenal bill. Stop grandstanding. Just stop grandstanding."

Trump promised Republicans would score a "massive victory" in the 2026 midterm elections and gain "40, 50, or even 60" House seats if they pass his agenda. He followed up with social media posts Wednesday morning. "Republicans, it is more important now, than ever, that we pass THE ONE, BIG, BEAUTIFUL BILL. The USA will Soar like never before!!!" he wrote, later adding, "It is IMPERATIVE that Republicans in the House pass the Tax Cut Bill, NOW! Our Country Will Boom!!!"

Despite that pressure and other efforts by the White House, Republican leaders were forced to delay the vote while they tried to wrangle more members. Rep. Chip Roy of Texas, a member of the Freedom Caucus, told Fox Business that, without more assurances or changes, he still has problems with the budget resolution.

The bottom line: We'll have an update tomorrow.

Acting IRS Chief to Resign: Reports

The acting head of the IRS will reportedly be leaving the beleaguered tax agency after it finalized a controversial data-sharing deal in which it agreed to provide taxpayer information to help the Trump administration's efforts to deport undocumented immigrants.

Multiple reports say that Melanie Krause, the acting IRS commissioner, will accept the deferred resignation offer extended to IRS employees. The data-sharing agreement was reportedly one factor in her decision. Treasury Secretary Scott Bessent and Homeland Security Secretary Kristi Noem signed the agreement this week, even as IRS lawyers said that it likely violates privacy law, according to The Washington Post.

Krause reportedly had been involved in discussions on the deal, but the final agreement differed from what she had seen. Krause only learned about the details of the final agreement from the news, CNN reported. Staffing cuts and other decisions made by Elon Musk's DOGE Service reportedly also played a role. One unnamed source told the Post that Krause feels that "some of the decisions that are being made now are things the IRS can never recover from."

"Melanie Krause has been leading the IRS through a time of extraordinary change. As we focus on IT modernization and re-organize the agency to better serve the taxpayer, we are also in the midst of breaking down data silos that for too long have stood in the way of identifying waste, fraud, and abuse and bringing criminals to justice," a Treasury Department spokesperson said in a statement to news outlets. "We believe these goals are critical to a more efficient government and safer country. We wish Melanie well on her next endeavor."

Other top IRS officials reportedly have also resigned or will be leaving the agency after the data-sharing deal, months of chaos and thousands of employee layoffs that are part of a broader effort to slash staffing by about 25%.

Krause is the agency's third leader since President Trump returned to office. Danny Werfel, the IRS commissioner appointed by President Joe Biden, took the helm of the agency in March 2023 for a term that was scheduled to run until November 2027. But Trump announced in December that he has chosen former six-term congressman and auctioneer Billy Long to lead the IRS. The Senate has yet to take up Long's nomination. In the meantime, Werfel resigned on Trump's inauguration day and the acting commissioner who replaced him, Douglas O'Donnell, retired in February after refusing to sign the data-sharing agreement with immigration officials.

Krause reportedly will stay on until at least mid-May.

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