Yes, he blinked, finally. But it took a lot longer than most investors would have guessed.
President Trump is finally signaling that his trade war has caused enough mayhem and he’s willing to do some damage control. Trump, so far, has raised the average import tax on some $3 trillion worth of products from 2.5% to 27%. He has also threatened to fire Federal Reserve Chair Jerome Powell for not fixing the damage Trump’s own policies are causing.
Markets have responded with steep losses in stock values. Investors have been voting against Trump’s “America First” facade by selling US assets in favor of gold or foreign currencies. interest rate moves show that investors are preparing for higher inflation. Economists have been raising their recession odds, in some cases making a Trump contraction their baseline scenario.
Well, adverse market reactions finally got to Trump.
On April 17, Trump said in a social media post that Powell’s “termination cannot come fast enough,” triggering yet another market sell-off. But five days later, Trump told reporters, “I have no intention of firing” Powell. Markets jumped.
Trump and his team have also signaled that it’s time to rein in tariffs that, in some cases, are so severe they’re effectively an embargo on imported goods. Trump and Treasury Secretary Scott Bessent both recently said Trump’s draconian 145% tax on Chinese imports is too high and needs to come down, as long as China makes similar adjustments. New tariffs might be half the current level. Other Trump aides said that more than a dozen trade deals are in the works, which presumably would bring down high tariffs in exchange for trade-partner concessions.
Read more: The latest news and updates on Trump’s tariffs
If Trump’s goal is to reassure markets — at long last — it’s working. Stocks surged on April 23 as Trump signaled a measured retreat in his trade war. Interest rates dipped, and the VIX volatility index declined. One rally doesn’t repair all the damage Trump’s trade wars have caused, but if these trends continue, that would mark a return to normal markets not riven by the destructive forces of protectionism.
Trump, meanwhile, has revealed just how much damage he’s willing to tolerate (on behalf of ordinary Americans) before he makes concessions of his own. Four metrics tell the story.
Economists always say that the stock market isn’t the real economy, but it is a guess at where the future economy is heading. Stocks have been falling because Trump’s tariffs likely mean higher prices, lower profit margins, less spending by businesses and consumers, lower growth, and less hiring. If those trends get bad enough, it would trigger a recession.
On the betting site Polymarket, odds of a US recession have soared from 20% at the start of the year to as high as 66% in early April. Those odds have since dropped to around 53%. Betting odds are not forecasts by economists. They’re just the guesses of people willing to wager money on an outcome. But many economists now place US recession odds at around 50%, more or less in line with the crowdsourced estimates.
No recession was on the horizon when Trump took office in January. The weakening economy is entirely due to Trump’s tariffs, and the outlook has darkened remarkably quickly for what was a healthy economy just a few months ago. Recession odds of 50% or higher seem to have gotten Trump’s attention.
Read more: What is a recession, and how does it impact you?
Trump has hinted that he doesn’t care about stock market declines, but it’s hard to believe the businessman-president is willing to be the guy who tanked the market for very long. The S&P 500 (^GSPC) rose 23% in 2024 under President Biden. Trump, by contrast, has been President Downer. Before Trump’s April 23 trade war backpedaling, the S&P 500 was down 12% for the year. The biggest peak-to-trough decline this year has been 19%.
The sagging stock market has basically represented investors laughing off Trump’s promise of a new “golden age” in America. He probably got antsy when stocks hit a 10% correction and didn’t want to get tagged with a 20% bear market decline. For now, Trump has narrowly escaped the bear market appellation.
Treasury Secretary Bessent has said Trump is focused on lowering long-term interest rates, focusing on the 10-year Treasury bond as a benchmark. But that hasn’t been going Trump’s way. Stock sell-offs usually bring lower interest rates because investors selling risky stocks usually park their money in safer bonds. Stronger demand for bonds means issuers can pay lower rates while still attracting buyers, which is why rates typically fall when investors shun risk.
Trump has triggered an unusual situation in which investors seem to be selling US stocks and bonds simultaneously, which means rates have not been falling as they normally do during sell-offs. Rates did gradually decline during the first three months of 2025, when markets were still normalish. But when Trump announced his big-gun tariffs in early April and the stock sell-off accelerated, rates went up when they should have gone down.
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The 10-year Treasury spiked by half a percentage point in a week, a dramatic move in a normally staid asset. Trump would probably like to see the 10-year rate below 4%, which would correlate with mortgage rates of around 6.5% or lower. He’s not getting that, and again, it’s because of his own policies.
Trump supposedly favors a weaker dollar because that makes US exports more affordable to foreign buyers. But a weaker dollar has downsides too. It makes imports more expensive to Americans. And if the dollar is weakening because investors are broadly selling US assets, it could bring higher interest rates for Americans and even trigger a sovereign debt crisis if investors stop buying US Treasury debt.
Through April 21, the dollar had fallen 9.4% relative to a basket of foreign currencies since the start of the year. It rebounded a bit after Trump talked back his trade war. Trump may have discovered that a gradually weakening dollar is OK, but a plunging greenback is not.
None of this means the Trump trade wars are over or that Trump is suddenly the market’s best friend. If Trump lowers his China tariff by half, for instance, it would still be at a sky-high 70%. That still implies sharply higher prices or costly workarounds for businesses dependent on those imports or consumers who buy them.
We’re finally learning Trump’s economic pain points, but they might still be uncomfortably high.
Rick Newman is a senior columnist for Yahoo Finance. Follow him on Bluesky and X: @rickjnewman.
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