Despite a 90-day reprieve on sweeping US tariffs, experts say unpredictability has already shaken global confidence and heightened recession risks
US President Donald Trump’s abrupt decision this week to scale back his newly imposed tariffs has temporarily soothed rattled markets—but analysts and economists warn the deeper damage may already be done.
On Wednesday, Trump announced a 90-day pause on most of the country-specific tariff hikes unveiled just days earlier, cutting proposed rates to 10% for most trading partners and opening the door to negotiations. Wall Street responded with a historic rally, with the S&P 500 surging more than 9% in a single session, and the relief spread across global markets.
But according to some experts, the underlying sense of economic instability triggered by Trump’s erratic policy shifts may have lasting consequences that are not so easily reversed.
A fragile reprieve
“Even if the tariffs are permanently suspended, damage has been done to the economy via a permanent sense of unpredictability in policy,” wrote George Saravelos, global head of FX research at Deutsche Bank, in a note released Wednesday.
Echoing that sentiment, Deutsche Bank’s economics team warned that the president’s policy U-turn may have calmed investors for now, but it has not resolved the core issue: a profound loss of confidence in the consistency and reliability of US economic policymaking.
“The genie is still out of the bottle on policy unpredictability,” they wrote Thursday. “Uncertainty is set to continue.”
That uncertainty, analysts say, extends beyond the 10% “pause tariff” that still applies to almost all imports, and the sharply higher duties still in place on steel, aluminium, autos—and China.
China still in the crosshairs
While most US trading partners were granted a reprieve, China was hit even harder. On the same day Trump rolled back tariffs elsewhere, he raised duties on Chinese goods from 104% to 125%, further escalating what is now an outright trade war with the world’s second-largest economy.
Beijing has vowed to retaliate, and already imposed an 84% tariff on US imports in response. Chinese officials labelled Washington’s actions “blackmail” and warned that continued unilateralism would be met in kind.
“The global economic risk remains until either Trump stops playing the tariff game, or Congress removes the power vested in the president,” said Pau S. Pujolas, an associate professor at McMaster University in Canada, who authored a study previously cited by the Trump administration in support of tariffs.
“This is not a serious way to manage an economy. Firms and households need clear, predictable policies to take the right decisions and make the economy blossom.”
The confidence shock
For now, markets have stabilised, but economists caution that the chaos of the past week has already inflicted a confidence shock that could weigh on investment, consumption, and even broader macroeconomic conditions.
“The average tariff rate as of today still stands at around 20%, with the tariff rate on China at around 125% constituting a de facto embargo,” said Preston Caldwell, a US economist at Morningstar. “Unless Trump announces further tariff reduction and credibly refrains from future retaliatory increases, the market is reacting too optimistically.”
Caldwell warned of a “major rise in inflation” and a potential economic slowdown if the current trade regime persists.
Justin Wolfers, a professor of economics at the University of Michigan, said that while the pause reduced the immediate recession risk, it hasn’t eliminated it. “It’s taken the edge off, but it’s only taken the edge off. The risks remain incredibly elevated.”
On Wednesday morning, betting markets had placed the odds of a US recession at 68%. Following Trump’s announcement, that number dropped—though only to 53%.
Ripple effects across markets
The S&P 500’s rally, though dramatic, has not fully undone recent losses. According to Deutsche Bank, the index remains nearly 4% below its level prior to the reciprocal tariff announcements on 2 April.
The US dollar has also seen wild swings. Initially selling off on tariff fears, it rebounded briefly after Trump’s pause but has since softened again. ING’s global head of markets Chris Turner said the greenback was expected to remain volatile, particularly if consumer and business data begin to reflect real economic damage.
Bond markets, too, are signalling distress. Falling yields indicate that investors are retreating to safer assets, reflecting a broader climate of caution.
“Chaos comes at a cost,” said independent Australian economist Chris Richardson. “The tariff stuff is playing out to the tune of ‘Hokey Pokey.’ Tariffs go on, tariffs go off, then get shaken all about.”
Strategic implications and lasting uncertainty
Beyond short-term volatility, economists say the recent events could permanently alter global economic relationships. Many countries are likely to accelerate efforts to reduce dependence on the US, both economically and strategically.
“The desire to build greater strategic independence from the US across all fronts will be here to stay,” Saravelos said.
Oxford Economics’ lead US economist Bernard Yaros added that continued uncertainty would reinforce a “wait and see” stance among businesses and households, dragging on spending and investment the longer it persists.
Investment analyst Dan Coatsworth at AJ Bell said the past week of instability could have already dampened economic activity. “The risk of a global recession remains high until there is more clarity on tariffs longer term,” he said.
“The trade relationship between the US and China is in tatters,” he added. “It is now significantly more expensive for a US company to buy goods from China, and for Chinese companies to buy from the US. The end customer will ultimately bear the extra cost—and they could vote with their feet by buying less or not at all.”
A road to recovery?
Despite the turmoil, some believe recovery is possible—if the current pause leads to measured, sustained negotiations.
“We can heal from this,” said Jim Caron, chief investment officer of the portfolio solutions group at Morgan Stanley Investment Management. Speaking to CNBC on Thursday, he said what markets need now is stability, not just relief.
“It’s going to take a little bit of time and some confidence rebuilding,” he said, noting that much of the recent volatility stemmed from the White House’s failure to clearly communicate its policy intentions.
“The damage that’s been done is essentially a shock to confidence,” Caron said. “But over time—these things have a way of getting crowded and healing themselves.”
Still, until the world sees a clear and consistent path forward on US trade policy, that healing process remains uncertain.
