“I know what I am doing,” Donald Trump told Republicans on Tuesday, when the massive tariffs he had imposed made world markets collapse. “Quiet!” He said in a publication on social networks on Wednesday morning. “Everything is going well.”
At 9.37 on Wednesday, the president remained optimistic about his policy, as noted in his publication of Truth Social: “It is a great time to buy !!!”.
But in the end, it was the markets that forced him to reverse.
Economic agitation, in particular the sudden increase in yields of government bonds, caused Trump to reconsider its position on Wednesday afternoon and pause its “reciprocal” tariffs for most countries during the next 90 days, according to four people with direct knowledge of the president’s decision.
When he was asked to explain the decision, Trump told journalists: “Well, I thought people were exaggerating a little. They were getting somewhat squeaky, you know, they were getting a little bright, a little scared.”
Between racks, high positions of the Trump team had feared that financial panic could get out of control and possibly devastate the economy. The Secretary of the Treasury, Scott Besent, and other members of the president’s team, including vice president JD Vance, had been pressing to adopt a more structured strategy of the commercial conflict that focused on isolating China as the worst actor, while still sending a broader message that Trump took to end the commercial imbalances.
After it revirmed on social networks, Trump’s team was in the little enviable situation of trying to believe the media that the plan had been from the beginning, a brilliant strategy taken directly from the pages of the president’s editorial success, “the art of negotiation.” Besent came to deny that the bond market would have motivated the change.
However, when Trump went out to explain his decision on Wednesday, he dismissed what Besent and Karoline Leavitt said, the White House Secretary, spoke of the agitation of the market and said he acted “instinctively, more than anything.”
Besent played an important role in the pause declared by the president. But Trump’s advisors admit in private that the real merit should be for bond markets. Trump’s decision was promoted by the fear that his tariff bet quickly became a financial crisis. And unlike the two previous crises of the last 20 years (the 2008 world financial crisis and the 2020 pandemic), this crisis would have been directly attributable to a single man.
Market collapse
The day Trump announced his plan to impose generalized tariffs, promised to “make the United States rich again.”
But the details of the plan and its objectives were still confusing. In the period prior to the announcement of tariffs last week, Trump’s economic team discussed until the last minute about the way the tariffs had to adopt, and both Besent and the secretary of Commerce, Howard Lutnick, advocated privately for more limited tariffs, according to two people familiar with the plans.
Peter Navarro, the White House trade advisor, was the most aggressive of Trump’s advisors, insisting on a tariff strategy that, according to him, would create a revolution in US manufacturing. The United States Trade Representative Office proposed its own formula to calculate the tariff rates of other countries, which was based on tariff rates plus an estimate of other commercial barriers. But in the end the president opted for a formula based on the commercial deficit, two people familiar with the conversations said.
When tariffs were finally announced last Wednesday, the markets collapsed.
On Sunday, Besent decided that he needed a private audience with the president. In less than 24 hours, the markets would open and investors predicted a “black Monday.”
Besent traveled with Trump back to Washington in the Air Force One. During the flight, Besent advised the president to focus on negotiating with other countries, stating that Trump is the most skilled negotiator that exists, four people informed of the conversation said. But he also stressed that Trump needed to articulate the end of his plan because the markets needed more certainty.
According to one of the informed people, Trump opposed, emphasizing that the discomfort would be “in the short term.” But Besent replied that this could mean many months in terms of market.
In search of clarity
Investors, Wall Street executives and the main donors convinced themselves that Trump was only blushing or that they would convince him to leave his most aggressive tariff proposals. Some of his advisors tried. Lutnick almost immediately advocated exemptions for the car industry. Others wanted exemptions for goods whose production is not enough to supply the US market, such as coffee.
Meanwhile, economists warned that strict tariffs, raising the prices of imported products, would seriously undermine another electoral promise: that Trump would reduce inflation.
But Trump has its own tariff theory, which has harden over 40 years, a theory that has frozen and resists the data that conflict with its instinct. Throughout many years, when they have presented statistics that do not agree with their instinct, he demands that they find alternative information that supports his beliefs.
So he went ahead, even while his advisors struggled to communicate to the public a policy that they did not fully understand. Attendees organized several meetings between Trump and their main advisors to try to find a way to convince the public that economic sanctions were a good idea.
For a while, the tariffs created a dynamic that Trump enjoys a lot: world leaders go to him and, as he said Tuesday night, “kiss me my butt” in search of agreements. Government officials said that more than 75 countries had sought an approach.
But the warning signs became too serious to ignore them.
The change of course
On Wednesday morning, Trump encouraged Americans to buy shares and urged companies to settle in the United States. Until this moment, no one knew that hours later it would change radically and put many of the tariffs for 90 days. The financial markets shot after the course reversed, which made it question whether Trump’s previous recommendation of a purchase opportunity was equivalent to a signal that some investors could have used to take advantage of the strong rise in the prices of the shares.
But shortly after Trump published his letter on social networks, he met in the Oval Office with Besent, Lutnick and Kevin Hasset, director of the National Economic Council. They discussed with the president the 10 -year treasure performance, emphasizing the concern for the health of the American financial system in general. Trump, in particular, understood what the increase in bond performance would mean for banks and their long -term loans, a topic that knows intimately for its years at the head of a real estate company.
Tariffs had triggered a strong liquidation in American and dollar bond markets, which investors usually consider shelter in times of agitation. After Trump announced the new tariffs last week, Wall Street economists soon increase their inflation forecasts or reduce growth, with many warnings about a recession. Millions of dollars of stock market value faded in a matter of days.
At 1:18 p.m. on Wednesday, Trump announced in Truth Social that he would back down the “reciprocal” tariffs for 90 days, while increasing tariffs to China to 125 percent. The pause, together with the maintenance of a 10 percent tariff rate for most countries, was a version of what several people had urged Trump to launch for days.
When they talked to the journalists shortly after Trump announced that he would turn back, both Besent and Leavitt tried to give the impression that it was the culmination of a carefully drawn plan: isolate China as the main guilty of inflicting discomfort to US workers.
“This was his strategy from the beginning,” said Besent.
Leavitt tried to frame the back of politics as the work of a negotiation genius.
“Many of you in the media clearly have not understood the ‘the art of negotiation.’ It is evident that you did not see what President Trump is doing here,” he said. “They tried to say that the rest of the world would approach China, when we have really seen the opposite effect. The entire world is calling the United States of America, not China, because they need our markets, they need our consumers and need this president in the Oval Office to speak with them, and that is exactly the reason they have called more than 75 countries.”
The main advisor of Trump, Stephen Miller, took the 180 degree turn to another level on the social platform X: “They have witnessed the greatest master economic strategy of an American president in history.”
Besent said that the president had decided to pause the tariffs because his government had received many requests to negotiate, and each negotiation would be “tailored” and, therefore, “it would take some time.”
The Treasury Secretary did not answer a question about why investors would trust Trump’s last word after so many changes.
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Trump’s measures only cover the next 90 days. As for any additional tariff exemption, the President refused to give the clarity that many investors are looking for.
When asked on Wednesday how he would decide on new exemptions, Trump said: “Instinctively, above all. That is, this is something that cannot be written. It is rather an instinct, I think, something else.”