Donald Trump has peered into the abyss. The US President watched the Wall Street meltdown and the global trading system (from which America benefits as much as anyone) start to collapse, and he hit pause. The conventional narrative will be that Trump has blinked, but I think he simply got what he wanted.
Yesterday’s decision to put a 90-day pause on reciprocal tariffs, while increasing the rate on China to 125 per cent, has certainly come as a relief to the markets. The S&P500 was up almost 9 per cent on the news. Investors can breathe again.
It would be easy to argue that President Trump has simply chickened out of the fight. The tariffs were about to trigger a global recession, and the fallout from that would dominate the rest of his time in the White House. It is not worth it.
And yet that ignores an obvious point. The rest of the world has been terrified into submission. Over the next three months will see a series of concessions. Countries in Asia such as Vietnam that were about to be wiped out will welcome American goods. The EU will realise that Ford pick-up trucks don’t need any levies on them. Heck, even the British Prime Minister Sir Keir Starmer may be photographed tucking into chlorinated chicken as he opens up the UK market. Trump will have won.
All this may well end with a global agreement to reorder trade and finance: the ‘Mar-a-Lago accord’ that had been rumoured in the markets for weeks. We will see over the next few weeks. True the uncertainty will linger for months and that will damage confidence. In the meantime, however, the crisis has been averted – and global trade can stagger on.
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