Donald Trump says he is raising tariffs on China to 125% “effective immediately”. But in a significant reversal, the US president has frozen all other tariffs at 10% for 90 days – leading stocks to rally.
Wednesday 9 April 2025 23:54, UK
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Live reporting by Narbeh Minassian
We’re pausing our coverage there, following a day of significant escalations in the US-China trade stand-off.
Donald Trump announced an increase on Chinese tariffs to 125%, while announcing a 90-day pause on higher levies for dozens of other countries – see our post below for more on what this all means.
We’ll have more Asian and European reaction – both from the markets and political sphere – early in the morning.
But until then, our US correspondent James Matthews breaks down what you need to know so far in this 60-second clip…
There’s been a lot to unpack tonight.
To cut through it all, here’s what Donald Trump’s tariff pause entails:
‘Reciprocal’ tariffs on hold
China tariffs increased
No change for Canada or Mexico
Car and metal tariffs remain
Sectors at risk
Donald Trump may be heading for a crash in popularity, according to one of the world’s eminent historians.
Speaking before Trump’s tariff reversal, Sir Niall Ferguson spoke on our podcast The World with Richard Engel and Yalda Hakim.
“Higher prices plus higher unemployment will make him less popular,” he said, as he set out the path unravelling before the Republican Party.
Watch the clip below, and check out the podcast in the link at the bottom of this post.
👉Listen to The World with Richard Engel and Yalda Hakim on your podcast app👈
By Ian King, business analyst
Chalk this one up to the bond vigilantes.
This is the term used periodically to describe investors who push back against what are perceived to be irresponsible fiscal or monetary policies by selling government bonds, in the process pushing up yields, or implied borrowing costs.
Most of the focus on markets in the wake of Donald Trump’s imposition of tariffs on the rest of the world has, in the last week, been about the calamitous stock market reaction.
This was previously something that was assumed to have been taken seriously by Trump.
During his first term in the White House, the president took the strength of US equities – in particular the S&P 500 – as being a barometer of the success, or otherwise, of his administration.
He had, over the last week, brushed off the sour equity market reaction to his tariffs as being akin to “medicine” that had to be taken to rectify what he perceived as harmful trade imbalances around the world.
Trump blinks
But, as ever, it is the bond markets that have forced Trump to blink – and, make no mistake, blink is what he has done.
To begin with, following the imposition of his tariffs – which were justified by some cockamamie mathematics and a spurious equation complete with Greek characters – bond prices rose as equities sold off.
That was not unusual: big sell-offs in equities, such as those seen in 1987 and in 2008, tend to be accompanied by rallies in bonds.
However, this week has seen something altogether different, with equities continuing to crater and US government bonds following suit.
At the beginning of the week, yields on 10-year US Treasury bonds, traditionally seen as the safest of safe haven investments, were at 4%.
By early yesterday, they had risen to 4.51%, a huge jump by the standards of most investors.
This is important. The 10-year yield helps determine the interest rate on a whole clutch of financial products important to ordinary US Americans, including mortgages, car loans and credit card borrowing.
Reminiscent of Truss
By pushing up the yield on such a security, the bond investors were doing their stuff.
It is not over-egging things to say that this was something akin to what Liz Truss and Kwasi Kwarteng experienced when the latter unveiled the mini-budget in October 2022.
And, as with the aftermath to that event, the violent reaction in bonds was caused by forced selling.
Now part of the selling appears to have been down to investors concluding, probably rightly, that Trump’s tariffs would inject a big dose of inflation into the US economy – and inflation is the enemy of all bond investors.
Part of it appears to be due to the fact that the US Treasury had yesterday suffered the weakest demand in nearly 18 months for $58bn worth of three-year bonds that it was trying to sell.
But in this particular case, the selling appears to have been primarily due to investors, chiefly hedge funds, unwinding what are known as ‘basis trades’ – in simple terms, a strategy used to profit from the difference between a bond priced at, say, $100 and a futures contract for that same bond priced at, say, $105.
In ordinary circumstances, a hedge fund might buy the bond at $100 and sell the futures contract at $105 and make a profit when the two prices converge, in what is normally a relatively risk-free trade.
So risk-free, in fact, that hedge funds will ‘leverage’ – or borrow heavily – themselves to maximise potential returns.
Immediate rewards
The sudden and violent fall in US Treasuries this week reflected the fact that hedge funds were having to close those trades by selling Treasuries.
Confronted by a potential hike in borrowing costs for millions of US homeowners, consumers and businesses, the White House has decided to rein back its tariffs, rightly so.
It was immediately rewarded by a spectacular rally in equity markets – the Nasdaq enjoyed its second-best day ever and its best since 2001, while the S&P 500 enjoyed its third-best session since the Second World War – and by a rally in US Treasuries.
The influential Wall Street investment bank Goldman Sachs immediately trimmed its forecast of the probability of a US recession this year from 65% to 45%.
Of course, Trump will not admit he has blinked, claiming some investors had got “a little bit yippy, a little bit afraid”.
And it is perfectly possible that markets face more volatile days ahead: the spectre of Trump’s tariffs being reinstated 90 days from now still looms and a full-blown trade war between the US and China is now raging.
But Trump has blinked. The bond vigilantes have brought him to heel.
This president, who by his aggressive use of emergency executive powers had appeared to be more powerful than any of his predecessors, will never seem quite so powerful again.
Let’s take a look at the state of the markets in the UK now.
While it’s too soon to gauge the reaction here to Donald Trump’s tariffs reversal, the FTSE 100 – the index of most valuable companies listed on the London Stock Exchange – finished down by 2.92% earlier today.
That puts it at its lowest level since March 2024, 13 months ago.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, said today was a blow for investors.
“Wednesday has turned into wipeout for equities as the trade war has taken on another twist of escalation,” she said.
“The internationally-focused FTSE 100 has dived deeper into the red, with losses accelerating following the retaliatory action.”
Developments and reactions have come thick and fast this evening, since Donald Trump announced a 90-day tariff pause and higher levies on China.
Still confused? Our US correspondent James Matthews breaks it all down for you in just 60 seconds.
Donald Trump is now blaming previous administrations for what he perceives to be Washington’s international trade issues.
“But I blame the people sitting at this desk more than I blame China,” he says, referring to his predecessors, though not naming any.
“If China can get away with, they got away with taking hundreds of billions and trillions of dollars right out of our pocket because our people here were stupid.
“Those stupid people – maybe corrupt, I don’t know – I don’t know how you can be that stupid.
“How do you get to be president and you’re stupid?”
He’s now wrapped up remarks to the media.
Many have been asking why Donald Trump insisted on staying the course – even posting to “be cool” on social media just today – before announcing a pause on his tariffs for most countries.
A reporter asks Trump this in the Oval Office, and he responds: “A lot of times, it’s not a negotiation until it is. And that happens.
“And, you know, I said outside that you have to have flexibility to do it right. And that’s what we have.
“We brought everybody to the table. And it may not be a negotiation. It may not last. I mean, you know, things may be asked that I think are not fair to us.
“Like we’ve been ripped off by essentially everybody for 35 years.”
Some clarification to bring you now over Donald Trump’s tariffs reversal, which he announced on social media earlier.
He revealed a 90-day pause for countries other than China, but that won’t include Canada and Mexico, the White House has now confirmed.
That means they will each still have to contend with a 25% tariff.
News of Donald Trump’s 90-day tariffs pause for countries other than China appears to have soothed some market concerns.
As the New York Stock Exchange closes, key indexes are all considerably up since he posted his announcement on social media.
Here’s a snapshot of how it looks, based on preliminary data:
Figures are still fluctuating, but we will bring you any major changes.
As of yesterday’s close, S&P 500 companies had lost $5.8trn in stock market value since the announcement last Wednesday.
That’s the deepest four-day loss since the benchmark was created in the 1950s, according to LSEG data.
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