BLOG — Apr 11, 2025
US rows back on reciprocal tariffs: Temporary respite or radical reset?
By Ken Wattret
While the acute near-term risk of a recessionary feedback loop has been averted, the chronic problem of policy volatility and related uncertainties persists.
What happened
On April 9, US President Donald Trump announced the following:
- An immediate 90-day pause of the additional “reciprocal tariff” rates applied to imports from a wide range of trading partners that were announced on April 2.
- An initial 10% baseline tariff on US imports from all countries (with ongoing exemptions for certain products and minerals).
- An immediate increase in the tariff on imports from China to 125% from 104%.
The president said that the pause on the additional reciprocal tariffs (with the exception of China) was due to the willingness of those countries to “negotiate a solution to … trade barriers, tariffs, currency manipulation and non-monetary tariffs” and because they had not “retaliated … against the US” following the prior announcements on April 2.
Automobiles and automotive parts imports into the US remain subject to a separate 25% tariff, as do imports of steel and aluminum. Imports from Mexico and Canada that do not adhere to the terms of 2020’s trade deal also remain subject to a 25% tariff.
What does this mean?
A positive interpretation of the announcement on April 9 would center on the following: It demonstrates a willingness to change course in the face of increasing evidence of negative economic and financial fallout. The so-called “guard rails” — that is, a negative response from financial markets will constrain how far the president and the administration are willing to go —exist.
The pain threshold of the president and the US administration appears to be lower than financial markets had feared following the announcement of the reciprocal tariffs on April 2 and the market turbulence that followed. The pause on the additional reciprocal tariffs will now lead to an acceleration of trading partners’ efforts to negotiate deals with the US.
A less positive interpretation of recent developments would include: The huge uncertainty surrounding the US policy outlook and its economic and financial market implications, particularly but not only related to trade, will persist. This will continue to have a negative impact on consumer and corporate sentiment, potentially reducing households’ propensity to consume and businesses’ propensity to invest.
Trade tensions between the world’s two biggest economies, the US and China, accounting for around 40% of global GDP combined, have continued to escalate. The additional reciprocal tariffs on trading partners other than China have merely been paused. They could be reintroduced, or increased even, at any point. A baseline 10% tariff on US imports still applies, as do 25% tariffs on key products and non-United States-Mexico-Canada Agreement (USMCA)-compliant imports from Mexico and Canada.
All things considered, a medical analogy arguably best sums up the current situation. The acute near-term risk of a negative feedback loop of extreme financial market turbulence and recessionary economic conditions looks to have been averted, at least for the time being. However, the chronic problem of exceptionally high US policy volatility, related uncertainties and negative spillovers onto economic prospects is still very much with us.
Want to know more?
This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.