April 9: Tariffs? What Tariffs?

Trump and Lincoln; USCIS to screen for antisemitism; Russia and Iran sign strategic partnership

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The Big Story

For the first half of today, it looked like we were in for another day of total chaos. Yields on 10- and 30-year U.S. Treasuries were exploding—apparently driven by hedge funds unwinding leveraged positions in the “basis” trade (and alleged selling from China and Japan)—leading to open speculation that the Federal Reserve would need to step in as early as this weekend to prevent a new financial crash. China announced 84% tariffs on U.S. goods, to match the new 104% U.S. tariffs on Chinese goods, and the European Union imposed 20% retaliatory tariffs of its own.

Meanwhile, comments from U.S. officials, most notably Treasury Secretary Scott Bessent, offered what appeared to be confirmation of the thesis we sketched out earlier this week: that this whole exercise was about China and, more specifically, about forcing U.S.-Chinese decoupling while pressuring U.S. allies to choose between Washington and Beijing. Here was Bessent on Wednesday morning:

At the end of the day, we can probably reach a deal with our allies … They’ve been good military allies, not perfect economic allies—and then we can approach China as a group.

And then, early this afternoon, the boss weighed in with a lightning bolt on Truth Social (emphasis ours):

Based on the lack of respect that China has shown to the World’s Markets, I am hereby raising the Tariff charged to China by the United States of America to 125%, effective immediately. At some point, hopefully in the near future, China will realize that the days of ripping off the U.S.A., and other Countries, is no longer sustainable or acceptable.

Conversely, and based on the fact that more than 75 Countries have called Representatives of the United States, including the Departments of Commerce, Treasury, and the USTR, to negotiate a solution to the subjects being discussed relative to Trade, Trade Barriers, Tariffs, Currency Manipulation, and Non Monetary Tariffs, and that these Countries have not, at my strong suggestion, retaliated in any way, shape, or form against the United States, I have authorized a 90 day PAUSE, and a substantially lowered Reciprocal Tariff during this period, of 10%, also effective immediately.

Thank you for your attention to this matter!

While the wording of the president’s “Truth” was a bit unclear, Bessent clarified in a press conference after Trump’s post that the 10% universal tariff would remain in effect, while the reciprocal tariffs would be paused for countries that did not retaliate. Bessent reiterated, however, that China was the “biggest source” of U.S. trade problems. Stocks surged on the news, with the NASDAQ rising nearly 10% within an hour of Trump’s announcement.

In a press conference, Trump explained the reasoning behind the pause. “People were jumping a little bit out of line” and “getting a little bit yippy, a little bit afraid.” He denied, in response to a question, that he had made the decision in response to the bond market, but acknowledged that he had been “watching” it and that it was making people “queasy.” On his Monday pledged that he would not pause the tariffs, he said:

You have to have flexibility. I could say, here’s a wall and I’m going to go through that wall and I’m going to go through it no matter what, and you keep going and you can’t go through the wall. Sometimes you have to be able to go under the wall or around the wall or over the wall…. I think the word would be flexible. You have to be flexible.

And, while Trump expressed hope that he could reach a deal with China, it’s difficult to imagine what sort of deal China could offer that would be acceptable, given how dependent the Chinese social and economic model is on using currency manipulation, trade barriers, and state subsidies to run the sort of massive trade surpluses that Trump now wants to address. As Bessent said at a banking conference this morning, the “Chinese business model” is like the scene from Disney’s Fantasia with the “brooms carrying buckets of water.” “It never stops. They just keep producing and producing, and dumping and dumping, and it’s going somewhere.”

A lot of headlines are proclaiming that Trump “backed down” or “reversed course” on the tariffs, and it may be true that he did not expect such a wild market reaction. But assume, for the sake of argument, that this whole thing was about China, and think about what was accomplished since last Wednesday. In the space of a week, we went from the old global trading system to a world in which the United States has levied 124% tariffs on China—effectively shutting down trade between the world’s two largest economies—and induced its other trading partners to come clamoring to preserve their access to U.S. markets, now protected by a 10% universal tariff. As Commerce Secretary Howard Lutnick described the fruits of the last week on X, “The world is ready to work with President Trump to fix global trade, and China has chosen the opposite direction.”

The opening shots have been fired, and the White House was able to take a head count of who was and wasn’t on its side. It’s now Trump and his advisers’ job to make the most of the next three months.

—Park MacDougald

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The Rest

→In our Post of the Day, Politico Europe Finance Editor Izabella Kaminska explains the unexpected resonances between Trump and Abraham Lincoln:

Kaminska is referring to a Monday talk at the Hudson Institute by Steven Miran, the Chairman of the White House Council of Economic Advisors. Here’s the YouTube link to Miran’s remarks, and here’s a transcript of his speech published by the White House.

→Speaking of Lincoln—160 years ago today, on Palm Sunday, 1865, Robert E. Lee surrendered his Army of Northern Virginia to Ulysses S. Grant at the McLean House near Appomattox, Virginia, effectively ending the American Civil War. Lincoln was assassinated by John Wilkes Booth less than a week later. While the true end of the country’s bloodiest war is generally dated to May 23, when Gen. Simon Bolivar Bruckner surrendered to Union forces in New Orleans, the last Confederate troops would not formally surrender until June 23, when Brig. Gen. Stand Watie, the chief of the Cherokee Nation, signed a cease-fire in Choctaw territory in modern-day Oklahoma.

→Federal immigration authorities will begin screening foreign nationals’ social media for evidence of antisemitism before granting immigrant benefit requests, according to a Wednesday press release from the Department of Homeland Security. U.S. Citizenship and Immigration Services, per the announcement, will:

consider social media content that indicates an alien endorsing, espousing, promoting, or supporting antisemitic terrorism, antisemitic terrorist organizations, or other antisemitic activity as a negative factor in any USCIS discretionary analysis when adjudicating immigration benefit requests.

The press release said social media content that supports “antisemitic terrorist organizations such as Hamas, Palestinian Islamic Jihad, Hezbollah, or Ansar Allah aka: ‘the Houthis,’” is an example of what USCIS will be searching for. The new guidance, effective today, will apply to “aliens applying for lawful permanent resident status, foreign students and aliens affiliated with educational institutions linked to antisemitic activity.”

→On Tuesday, the Russian Duma ratified a 20-year comprehensive strategic partnership with Iran. While the deal, signed by Russian President Vladimir Putin and Iranian President Masoud Pezeshkian in January, aims to promote cooperation in defense, energy, counterterrorism, trade, and intelligence-sharing it falls short of requiring mutual defense; Russia’s deputy foreign minister clarified earlier this week that while Moscow opposes any U.S. or Israeli attack on Iran, it would consider itself under no obligation to come to Tehran’s defense.

→Trump is expected to sign an executive order today repealing an Obama-era regulation—eased by the first Trump administration before being reinstated by Biden—limiting the amount of water that can flow through showerheads, The Wall Street Journal reports. According to a 1992 water efficiency regulation passed by Congress, showerheads can have a maximum flow rate of two and a half gallons per minute, but Obama and Biden interpreted that limit to apply to the collective output of all showerheads in a fixture, while Trump plans to make it apply to each showerhead individually. “No longer will showerheads be weak and worthless,” reads a draft text of the executive order viewed by the Journal. The new rules, the administration predicts, will “make America’s showers great again.”

→We wrote this one before the pause was announced, but we’re including it anyway jus for fun …

An announcement from the Great Helmsman:

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