The power that brought Trump to his knees

WELT The power that brought Trump to his knees Gregor Schwung • 4 hours • 3 minutes reading time US President Donald Trump is defusing the trade war and suspending certain tariffs for 90 days. Except for China. The People's Republic will pay even higher rates in the future. Why Trump's tariff calculations didn't work out has become clear in recent days. Secretary of Commerce Howard Lutnick described Donald Trump's post on Truth Social as "the most extraordinary of his presidency." Just twelve minutes earlier, the US President had defused the trade war with much of the world. The increased "reciprocal" tariffs will be paused for 90 days to negotiate. During this time, a new universal tariff rate of ten percent will apply. Except for China. Because Beijing showed a "lack of respect," Trump said, he increased the tariff on the country from 104 to 125 percent. Trump has thus done what he and his staff have vehemently ruled out in recent days: giving in. As recently as Tuesday, his spokeswoman, Karoline Leavitt, asserted that the president was definitely not considering the issue of pausing tariffs. But Trump had no other choice. The fact that the US president had started the trade war in the first place was due to what he perceived as "unfair" trade relations with the vast majority of countries in the world. He was concerned not only with import tariffs imposed by American trading partners, but also with non-tariff trade barriers imposed by other countries. With the tariff announcements, the president wanted to force other countries to the negotiating table. "The phone is ringing nonstop," the White House rejoiced on Tuesday. Seventy countries have announced their willingness to talk. "I don't even know when I'm going to talk to all of them," Trump joked on Tuesday. In his eyes, the strategy worked. The fact that the entire global economy was threatening to slide into the abyss in the meantime didn't bother him. "Stay cool," he wrote on Truth Social on Wednesday morning, in light of the stock prices that had been steadily plunging for days. He studiously ignored criticism from his wealthy donors, such as Bill Ackmann, who themselves had lost millions in their fortunes. The hedge fund manager accused him of instigating a "nuclear economic winter." Even Elon Musk publicly criticized the tariff policy and publicly attacked trade advisor Peter Navarro. He was "dumber than a sack of rocks," the Tesla CEO wrote on X. Unlike all economists, Trump never saw a problem with tariffs. Quite the opposite – they even had positive effects. They would "generate trillions and trillions of dollars to lower our taxes and pay off our national debt," he said in his speech on April 2, "Liberation Day." Tariffs had serious consequences for the US bond market. In recent days, however, it has become clear that this calculation will not work. A threatening development has occurred in the bond market. The yield on ten-year US Treasury bonds has risen to over 4.5 percent. 30-year bonds even yielded more than five percent. Within just a few days, yields have risen by more than 0.6 percentage points. This had two serious consequences. First, it caused panic among economists. US Treasury bonds are considered a safe haven, especially in times of uncertainty. If their interest rates rise, it also becomes more expensive for companies to borrow money. Combined with the burden of the tariffs, this would have been a toxic mix that would have fueled a recession. Donald Trump likely attached even greater importance to the second consequence. The higher yields have caused the annual cost of the US's $36 trillion national debt to rise by $216 billion, assuming this interest rate increase is sustained. Americans already have to pay nearly $1.2 trillion in interest. This would have wiped out any potential additional revenue from tariffs. Financial Markets: Great Relief Financial markets reacted with great relief to Trump's withdrawal on Wednesday. Just seconds after Trump's announcement, prices skyrocketed. The Dow Jones Industrial Average is up six percent, and the Nasdaq tech index is up around ten percent. But there is no lasting all-clear in the trade war. "Even with a ten percent tariff, we have the highest tariff rate since the 1930s," Ed Gresser, former Deputy Trade Representative under Trump and Biden and current Vice President of the Progressive Policy Institute, told WELT. While the White House reportedly "got cold feet," it hasn't completely reversed course. “It remains a destructive policy,” said Gresser.