President Trump's decision to pause his reciprocal tariffs for three months marked a stunning reversal. This followed a week of mounting pressure from Republicans, business leaders, and the unsettling reaction in the US bond market. The sharp sell-off in government bonds, indicating a potentially catastrophic economic outcome, was a pivotal factor in his decision.
The Treasury Department's alarm over the bond market's reaction was central to Trump's decision. Treasury Secretary Scott Bessent directly raised these concerns with Trump before the announcement. The unusual inverse correlation – bond yields rising amid a stock market downturn – heightened anxieties. This contrasted sharply with the usual safe-haven status of Treasuries during market volatility.
While initial pressure from various sources didn't sway Trump, the bond market turmoil, coupled with increasing criticism, ultimately led to the change in policy. Calls from key business allies emphasized the serious bond market developments, adding to the pressure.
Trump justified the pause by citing concerns over the bond market's reaction, viewing the market as “a little queasy.” He framed the pause as part of a broader negotiating strategy, downplaying it as a retreat. However, his own trade representative appeared unaware of the upcoming decision.
Even with the pause, Trump suggested possible exemptions for some US companies, highlighting his impulsive decision-making. This showcased a whirlwind Wednesday at the White House, with advisors scrambling to keep up with his rapidly changing decisions and messaging.