For a brief, shining moment Wednesday, it appeared that a glimmer of sanity had infiltrated Donald Trump’s trade war.
Trump made a sudden reversal on the “reciprocal” tariffs he had begun imposing on various leading trade partners and other countries.
He called for a 90-day pause in those tariffs while simultaneously escalating tariffs on Chinese goods to 125%, effectively closing off bilateral trade.
The stock market, which had been experiencing a significant downturn since Trump announced the “reciprocal” tariffs on April 2, responded swiftly, registering one of its sharpest single-day gains in history.
However, the market resumed its downward trend on Thursday, reflecting investors’ recognition that even in the face of Trump’s sudden shift, his overarching tariff policy remained economically nonsensical.
He left in place a 10% worldwide tariff and 25% tariffs on autos and auto parts, while the steeper tariffs on China have intensified a trade war that experts argue the U.S. cannot win.
Trump’s reversal amplified doubts about the economic rationale behind his tariff strategy, which has faced widespread criticism from economists and trade experts alike.
It also raised questions about whether Trump comprehends international trade dynamics and whether those around him or outside observers can decipher his motives.
This article will explore the main theories relevant to Trump’s sudden decision to pull back on tariff increases, as well as why, regardless of the explanation behind his trade war, it does not benefit America.
It is crucial to note that there is no concrete evidence for any of these theories, although they are consistent with Trump’s recent tariff maneuvers.
The White House was contacted for comments regarding these scenarios, but no response was received.
— The Potential for Stock Manipulation: Back on March 13, I wrote a column casting doubt on the idea that Trump and insiders in the White House were influencing the stock market through his inconsistent announcements related to tariffs and the economy.
I hereby retract that column.
The reality is that no one has concrete information regarding any activity during that time, but there are concerns about the potential for manipulation arising from the erratic tariff policies emanating from the White House.
Sen. Adam Schiff (D-Calif.) highlighted this concern late in the trading day Wednesday, tweeting that Trump’s “constant gyrations in policy provide dangerous opportunities for insider trading.”
He questioned if anyone in the administration was privy to Trump’s latest tariff reversal ahead of time and whether there were trades made that exploited the situation, profiting at the expense of the public.
Richard Painter, who served as chief ethics lawyer for former President George W. Bush, echoed these concerns.
Painter suggested, “This scenario could expose the president to accusations that he engaged in market manipulation.”
The timing of Trump’s post on Truth Social Wednesday morning was indeed peculiar.
At 9:37 a.m. Eastern time, he posted: “THIS IS A GREAT TIME TO BUY!!!”
Just four hours later, at 1:18 p.m. Eastern, he announced on Truth Social that he was abandoning his previously stated “reciprocal” tariffs.
Despite the lack of evidence that he or anyone in his circle made trades based on prior knowledge of his tariff announcement, concerns linger that someone like Trump could hypothetically manipulate the situation by hinting to his followers about a bullish development, allowing them a brief window for profit-making trades.
What is clear is that derivatives linked to the Standard & Poor’s 500 and Nasdaq indices surged around 1 p.m., just minutes before the announcement.
This superficial observation raises implications that someone might have acted on information ahead of the announcement.
It is important to note that the STOCK Act of 2012 prohibits members and employees of all three government branches—including the president—from trading on nonpublic information acquired through their official positions.
Further, top executive branch officers and employees are required to report any investment transactions exceeding $1,000 within six weeks.
Therefore, we may eventually learn who, if anyone, traded on Wednesday.
Yet proving that these trades connect to knowledge of the upcoming announcement could prove difficult.
There are various plausible explanations that could account for stock purchases on Wednesday, including the notion that the market had already accounted for the effects of the tariffs and was poised for recovery.
— The Stock Market Freakout: One possibility is that Trump’s economic advisers, including Treasury Secretary Scott Bessent, and political counselors effectively communicated to him that the rapid market decline since April 2 would not bode well for the economy or for Republicans in the 2026 midterms.
The wave of criticism had reached business leaders, including some of Trump’s staunchest supporters in the billionaire and millionaire class.
In the past, Trump has boasted about his policies propelling the investment market upward, making it likely that these concerns finally resonated with him.
— The Bond Market Freakout: Particularly concerning for financial observers was the unusual, counterintuitive activity occurring within the treasury bond market.
Typically, bond and stock prices act in inverse relation: as stock prices drop, investors typically flock to T-bonds, recognized as the safest securities worldwide—a phenomenon referred to as a “flight to quality.”
However, this trend did not manifest; instead, bond yields increased, which lowered prices.
Such activity indicates that treasuries might be losing their appeal or that the stock market’s decline has inflicted untenable losses on Wall Street traders.
Any of these explanations could lead to severe consequences, as pointed out by former Treasury Secretary Lawrence Summers.
Before the markets opened Wednesday, Summers tweeted that “developments in the last 24 hours suggest we may be heading for a serious financial crisis wholly induced by US government tariff policy.”
He noted that this highly unusual market pattern suggests a general aversion to US assets in global financial markets, which could instigate a range of adverse economic cycles, particularly in light of government debts and deficits and the reliance on foreign purchasers.
— Trump the Mastermind: In contrast, Trump’s representatives and devoted supporters are insisting that his inconsistent tariff policies were part of a grand strategy all along.
Bessent claimed, “This was his strategy all along.
President Trump created maximum negotiating leverage for himself.”
White House Press Secretary Karoline Leavitt added, “Many of you in the media clearly missed ‘The Art of the Deal.’
You clearly failed to see what President Trump is doing here.”
She had the support of billionaire hedge fund operator Bill Ackman, who had recently expressed concern over the potential for a “self-induced, economic nuclear winter.”
Following Trump’s announcement, Ackman tweeted: “This was brilliantly executed by @realDonaldTrump.
Textbook, Art of the Deal.”
However, attributing Trump’s actions to his alleged deal-making prowess implies that he received something in exchange for his withdrawal.
No such concessions or agreements are apparent.
Although Bessent asserts that countries on the reciprocal list have been clamoring to negotiate with the White House, no agreements emerged prior to Trump’s announcement.
In fact, the stock market’s subsequent decline on Thursday suggests that Trump’s credibility as a negotiator in tariff matters has waned.
The problem with portraying a negotiator as cunning like a fox is that sometimes the behavior can appear as if someone is simply acting irrationally.
The reality remains that, despite Trump’s tariff retreat, his overall policies have left the international trading system in disorder.
Moreover, the detrimental impact of these policies is expected to be most pronounced for the U.S.
This perspective is shared by Adam S. Posen, an authority on international trade and president of the Peterson Institute for International Economics.
Posen stated on Wednesday, “The U.S. economy will suffer enormously in a large-scale trade war with China.
The Trump administration may believe it’s acting tough, but in reality, it is rendering the U.S. economy vulnerable to Chinese retaliation.”
This situation arises because, in trade terms, the U.S. has a greater dependency on China than China has on the U.S.
The U.S. is fundamentally miscalculating its position regarding the two countries’ trade imbalance.
The administration operates under the assumption that it holds the upper hand: “What do we lose by the Chinese raising tariffs on us?” Bessent remarked on CNBC.
“We export one-fifth to them of what they export to us, so that is a losing hand for them.”
However, Posen countered that the reality is the polar opposite.
He indicated that the U.S. exports to China are closer to two-fifths of what China sends to the U.S.
“The United States acquires critical goods from China that cannot be easily replaced and could not be produced domestically without incurring prohibitive costs.”
In an escalating trade war, while China will indeed experience loss of sales (and thus revenue), it is important to note that unlike the U.S., China has a surplus of savings and can endure the loss of trade income indefinitely.
By restricting imports from China, Posen warns, “the United States will encounter shortages of essential inputs spanning pharmaceuticals, crucial semiconductors for cars and household appliances, and critical minerals for industrial usage, including weaponry production.”
The outcome could lead to stagflation—a combination of increased costs alongside a contracted economy—reminiscent of the 1970s and the more recent pandemic experience.
The only adjustment the U.S. economy has to counter that scenario is an increased unemployment rate.
This is the direction Trump appears to be charting for the nation.
image source from：https://www.latimes.com/business/story/2025-04-11/no-one-understands-trumps-thinking-on-tariffs-here-are-the-top-guesses
