Trump's tariff pause brings little relief as recession risk lingers

A week of turmoil unleashed by U.S. President Donald Trump's tariffs showed little sign of easing on Friday, with markets again tumbling and foreign leaders trying to work out how to respond to a dismantling of the world trade order.

Battered financial markets were given a brief reprieve Wednesday when Trump decided to pause duties on dozens of countries for 90 days. However, his escalating trade war with the world's No.2 economy, China, has fuelled fears of recession and further retaliation.

U.S. Treasury Secretary Scott Bessent tried to assuage skeptics by telling a cabinet meeting on Thursday that more than 75 countries wanted to start trade negotiations, and Trump himself expressed hope of a deal with China.

But the uncertainty in the meantime extended some of the most volatile trading since the early days of the COVID-19 pandemic.

The S&P 500 index (.SPX) ended 3.5% lower on Thursday and is now down about 15% from its all-time peak in February. Some analysts believe stocks have further to fall due to the uncertainty surrounding the U.S. tariff policy.

Asian indices followed Wall Street lower on Friday with Japan's Nikkei (.N225) down nearly 5% and Hong Kong stocks (.HSI) heading towards the biggest weekly decline since 2008. Oil prices are also set to drop for a second straight week.

Bessent on Thursday shrugged off the renewed market sell-off and predicted that striking deals with other countries would bring more certainty.

The U.S. and Vietnam agreed to begin formal trade talks after Bessent spoke with Vietnamese Deputy Prime Minister Ho Duc Phoc, the White House said.

Japanese Prime Minister Shigeru Ishiba has set up a task force for the negotiations, headed by his close aide, that hopes to visit Washington next week, according to local media.

Trump's tariff pause excluded China. Instead he ratcheted up tariffs on Chinese imports, raising them effectively to 145% when levies imposed earlier this year are taken into account, as punishment for Beijing's move to match his earlier duties.

Chinese officials have been canvassing other trading partners about how to deal with the U.S. tariffs, most recently talking to counterparts in Spain, Saudi Arabia and South Africa.

Trump told reporters at the White House he thought the United States could make a deal with China, but he reiterated his argument that Beijing had "really taken advantage" of the U.S. for a long time.

"I'm sure that we'll be able to get along very well," Trump said, adding that he respected Chinese President Xi Jinping. "In a true sense he's been a friend of mine for a long period of time, and I think that we'll end up working out something that's very good for both countries."

China rejected what it called threats and blackmail from Washington and pledged to follow through to the end if the U.S. persists, Commerce Ministry spokesperson He Yongqian told a regular press briefing on Thursday. China's door was open to dialogue, but this must be based on mutual respect, the ministry said.

Beijing also restricted imports of Hollywood films, targeting one of the most high-profile American exports.

The U.S. tariff pause also does not apply to duties paid by Canada and Mexico, whose goods are still subject to 25% fentanyl-related tariffs unless they comply with the U.S.-Mexico-Canada trade agreement's rules of origin.

With trade hostilities persisting among the top three U.S. trade partners, Goldman Sachs estimates the probability of a recession at 45%.

The rollback on the other tariffs did little to lower the overall average import duty rate, according to Yale University researchers. The average effective tariff rate is the highest in more than a century, the Yale Budget Lab wrote on Thursday.

One reprieve in the global trade wars came when the European Union said it would pause its first counter-tariffs.

"We want to give negotiations a chance," European Commission President Ursula von der Leyen said on X, while also warning that counter-tariffs could be reinstated if negotiations "are not satisfactory."

The EU had been due to launch counter-tariffs on about 21 billion euros ($23 billion) of U.S. imports next Tuesday in response to Trump's 25% tariffs on steel and aluminium. It is still assessing how to respond to U.S. car tariffs and the broader 10% levies that remain in place.

A table showing sectors of imported products and the corresponding estimated price increases that could result from Trump's sweeping tariffs, ranging from 10% for medical diagnostic equipment to 30% for computer parts and toys & video games.

A table showing sectors of imported products and the corresponding estimated price increases that could result from Trump's sweeping tariffs, ranging from 10% for medical diagnostic equipment to 30% for computer parts and toys & video games.

Trump has claimed the U.S. was now collecting $2 billion a day from his tariffs.

But that appeared to be an overstatement given that the Treasury on Thursday reported that gross customs duties in March totaled $8.75 billion, up by about $2 billion from a year earlier and the highest since September 2022. The increase is partly due to Trump's tariff increases since February, a Treasury official said.