The Daily - A U-Turn on Tariffs

Episode Date: April 10, 2025

After promising that tariffs against dozens of countries were here to stay, no matter how much they hurt businesses or the stock market, President Trump has abruptly reversed course.But there’s an exception: his levies on China, which he said he would raise to 125 percent.Jonathan Swan, who covers the White House, explains why the president changed his mind, and David Pierson, who covers China, discusses why Beijing won’t back down.Guest:Jonathan Swan, a White House reporter for The New York Times.David Pierson, a foreign correspondent for The New York Times covering China.Background reading: Inside President Trump’s reversal on tariffs.The United States and China are engaged in a risky game of chicken with no off-ramp in sight.For more information on today’s episode, visit nytimes.com/thedaily. Transcripts of each episode will be made available by the next workday. Photo: Eric Lee/The New York Times Unlock full access to New York Times podcasts and explore everything from politics to pop culture. Subscribe today at nytimes.com/podcasts or on Apple Podcasts and Spotify.

From the New York Times, I'm Michael Balbara. This is The Daily. President Trump says that he is pausing some of the tariffs that took effect overnight. He announced a 90-day pause on most of his new tariffs. After promising that tariffs against dozens of countries were here to stay. No matter how much they hurt businesses or the stock market, President Trump has abruptly reversed course. A universal 10% tariff is in place while country-specific deals come together

and sector-specific tariffs remain. It looks like the U.S. has blinked. Except when it comes to China. The president also saying that he will raise the tariff on Chinese imports now up to 125%. Today, Jonathan Swan on why the president changed his mind and David Pearson on why China won't back down. back down. It's Thursday, April 10th.

Hey, Jonathan. Thank you for coming in very last minute and joining us. Thanks for having me. So the question here is very simple. Why did Donald Trump reverse himself here and take the off-ramp from these tariffs that none of us thought he was very likely to take? What happened here?

Well, if you listen to the public explanations from his aides. This negotiation went exactly the way we had hoped it would go. This was the plan all along. As I told everyone a week ago, do not retaliate and you will be rewarded. The Treasury secretary, the press secretary. Many of you in the media clearly missed the art of the deal. You clearly failed to see what President Trump is doing here.

the art of the deal. You clearly failed to see what President Trump is doing here. The genius out of the deal strategy to isolate China and negotiate with the rest of the world. The entire world is calling the United States of America not China because they need our markets, they need our consumers, and they need this president in the Oval Office to talk to them. Right. This was all pre-planned. Yeah, that's not true. Behind the scenes, what actually happened,

and we're still getting more detail now. You know, my colleagues, Maggie Haberman and myself, and others on our team have been reporting this out, but... Right, it's only 5 o'clock. We haven't had all that much time to make sense of, basically, a three-hour-old pause. Yeah, but based on the conversations I've had in the last two hours, I can say with confidence that this was a decision driven by fear of a full blown financial panic.

Wow. In crisis. It is true that Scott Bessent, the Treasury Secretary and others in Trump's orbit have been for several days now trying to talk him towards a more tailored tariff strategy, one that would not punish allies as harshly as America's worst trade adversaries, and one that would potentially isolate China while putting a freeze on other countries to negotiate, which is where they ended up. But as has become clear in conversations I've had in the last couple of hours, the entity that deserves most credit for today's decision is the bond markets and fear among Trump's

team that this could spiral out into a full blown financial panic. So just explain the meltdown, Jonathan, in the bond market. Well you got the worst person you could possibly ask to explain the meltdown Jonathan in the bond market Well, you got the worst person you could possibly ask to explain the meltdown in the bond market You actually need someone who knows what they're talking about. Okay. Okay, Jonathan we figured this might be the case that you are not the authority on the bond market and so in the grand tradition of phoning a friend and having Marshall McLuhan behind the potted plant we're gonna bring on Someone who is an authority on bonds to briefly explain what the heck just happened there. I think that's very wise for your listeners.

Hello? Hey, Peter Goodman. Michael Barbar. How are you, sir? Good, good. Also, hello to Jonathan Swan, who has just acknowledged what I would acknowledge in this moment, too, which is that the bond market is pretty hard to explain.

So we decided to call you and ask you to just briefly explain what happened in the bond market. Because as Jonathan just put it, that felt decisive in the Trump administration's decision to hit pause on the tariffs. That terrified them, Jonathan just said. So what happened? Why would it merit terror from this administration?

Sure. So there are not a lot of sure things in this world, but one of them is that in times of crisis, people around the world buy the US dollar and specifically they buy US government bonds. Because there's this built-in assumption that whatever happens, war, aliens invade, you know, whatever, the US government's going to endure. And that appears to have broken down, not fully, but at least in the margins, this idea that the US is the ultimate safe haven is broken down. And when people are less willing to buy US government debt, US government has to pay a greater rate of return to persuade people to buy our debt. They have to pay higher

interest rates, basically. And a lot of other interest rates are paid to the rates on US government debt, mortgages, credit cards. And so you've got both the message of the bond market freaking out, which is that people who trade money for a living worry that bad days are ahead. And then you've got the direct consequences of jacking up borrowing rates, which is an easy way to end up in a nasty recession. God, just to make sure I understand, traditionally you buy a bond,

you basically loan the United States government some money, you are 1000% sure that money's gonna come back with a little extra. All of a sudden, people are fearful that might not be the case. The government might not be so dependable. They start selling these bonds and it starts to mess up all other kinds of borrowing rates around the economy. And that's how you suddenly get into a situation where this all starts to go really sideways?

Yeah, I mean, you know, your mortgage goes up, well, you're going to spend less on other parts of the economy, which means you're depriving businesses of income. Maybe you're not going to buy that house you were thinking about. And now, housing prices don't go up as much and some developer doesn't make as much money as they hoped. And construction companies get less business as a result. This is how economic downturns happen. One key trigger is when the cost of borrowing money goes up, and especially quickly, that can be a real shock to the system. Got it.

And that shock is exactly what happened today in the bottom. OK, Peter, this was really helpful. So thank you. Thank you. OK, Jonathan, this is really helpful. So thank you. Thank you. Okay, Jonathan, do you get it now? I kind of got it before, but not in a way that was going to be very useful to your listeners. I'm glad you got Peter on. Well, perhaps you could have done it just as well.

We'll never know. No, no, no, no, no. You made the right decision. So what else is factoring into the White House decision beyond the bond market? When we had been talking to you a couple of days ago, there were all these CEOs knocking on the president's door and saying, this is not sustainable. None of that mattered. It was just the bond market suddenly going haywire or was it all kind of becoming one big collective untenable situation?

Well, I don't want to pretend omniscience here. It's very hard to kind of get inside Trump's head. As I said to you in the last time we talked, the only thing you could really go by is what he's saying privately and what he's saying publicly. And the two things were pretty much the same, which was these tariffs are great. They're bringing in money. Everyone's coming and begging to me and kissing my ass. But I think things pretty clearly started to shift Sunday night, Monday morning in the direction of being open to negotiations. My colleague Maggie Haberman has some reporting that Scott

Bessent, the Treasury Secretary, flew with Trump to Washington from Palm Beach on Sunday night and had a really important conversation with him on the plane, steering him more in this direction. JD Vance, actually the vice president, was supportive of this idea of being more structured with the tariffs, focusing more on China. So these conversations were happening, but when we last spoke, which was Monday, I didn't have any sense and neither, this is the more important part, neither did Trump's most senior advisors that he was going to back off these tariffs. Mr. Trade Representative, are you aware that the tariffs have been paused?

I am, yes. When were you made aware of that? The US Trade Representative, Jameson Greer, was on the Hill. Right. What are the details? How long is the pause? How many days? How many weeks?

I understand it's 90 days. I haven't spoken to the president since I've been in this room. So the trade representative hasn't spoken to the president of the United States about the pause? He didn't know about it before it happened. Right. And that earned him some serious mockery from Democrats who said, who is in charge here? Because if the US trade representative is in front of Congress defending these tariffs

while the tariffs are paused, it did not seem to the members of that congressional committee that there was any unified vision of what was happening. Right. But this just goes to show how quickly this all came together and how much it was driven by pressure, external pressure and anxiety rather than something that was preordained, you know, the plan all along. I mean, give me a break. So Jonathan, we're learning something, it seems pretty important about this president,

which is contrary to our belief that after the first term, he was no longer swayable by market forces when it came to something like tariffs. That if the markets went down, even if perhaps the bond market started to go haywire, he was deeply committed to this vision of tariffs. That was our thinking. And the markets were not going to take him off that position. And then... Can you walk us through your thinking about why you decided to put a 90-day pause?

Well, I thought that people were jumping a little bit out of line. They were getting yippy, you know? They were getting a little bit yippy, a little bit afraid. We hear something very different, including the president personally in front of the White House acknowledging that people were getting the yippies. That was his word. The bond market right now is beautiful. But yeah, I saw last night where people were getting a little queasy. And so clearly this is the president conceding that he is at the mercy of the markets to

a degree. For sure. And what we did today was we located his pain threshold. He actually withstood way more pain. Ten trillion dollars in wealth wiped out. Yes. This was not term one Trump until now. It required genuine fear of some of his top officials that this really could spiral out

of control. This could bring about a recession on his watch. Trump has privately, certainly in the last two years, he's been talking about, I don't want to be Herbert Hoover, I don't want, talks about 1929 a lot privately. This idea that some catastrophic Great Depression type event could happen on his watch. He really fears that. And up until now, what he had seen in the markets obviously did not lead him to the conclusion

that he could be Herbert Hoover. And I think the signals that they were seeing today tipped him over the edge. I'm curious what it does to Trump's credibility going forward to have that pain threshold reached in such a short period of time, less than a week when it came to these tariffs. And so if you're the rest of the world looking at whether Trump and his administration can stand by these difficult positions like tariffs

that he said were a long term project to bring jobs back to the US, who's going to believe him the next time he wants to create leverage in one of these situations? Well, I don't want to speculate because I haven't talked to any foreign leaders since the pause and I'd like to talk to a few before I give you any commentary on that. But what I will say is even before this decision today, you had a crisis of credibility in which allies, foreign governments did not know whether they could trust the president's word, whether his negotiators actually spoke on his behalf. I have spoken to a number of foreign officials who really struggle negotiating with this White House because they don't know if their interlocutors are going to have the rug pulled out from under them from the president any minute.

So Scott Besson, the Treasury Secretary talked today about more than 75 countries have reached out for negotiations. They're going to be, quote unquote, bespoke. Each one is individual, blah, blah, blah. Well, that's fine. But I think that it's not going to be so easy to negotiate necessarily with all these different countries because they don't necessarily know that they can rely on the word of the United States after all of this turmoil, all of this rug pulling. And I think

that's actually going to be the real challenge. Again, asking you to do something that perhaps is a little uncomfortable for you, which is to speculate on what happens next. But is there any sense that in 90 days, the president would ever restore these tariffs, knowing the amount of trauma they inflicted on the US and the global economy? Or is the sense that they have every incentive to do deals and not bring these tariffs back across the world? Well, I'm not going to make a speculation about what Trump might do, but I think the markets already have.

I think the market reaction to this, as exuberant as it was, suggests that people think that the idea of Trump launching a global trade war against allies and adversaries alike has passed. Yes, and that this is more likely to be an America versus China trade war with a baseline tariff of 10%, which is much more tolerable for not just foreign governments, but the markets. Right. And we should just say the state of play at this moment is that tariffs that were varied

based on countries and in some cases extremely high have gone down to a much, much smaller universal tariff of 10%. The rest have been paused, but not when it comes to China. Those originally very high tariffs remain and in fact through TIT for T back and forth they've gone up past 100% from the US as of Wednesday and so therefore we now have a trade war that has seemingly been narrowed down to China and I wonder How you think about that and how far we think the president is willing to take that particular face off? and is willing to take that particular face off. My sense is quite far and he won't want to be the one to back down first, but he can't be happy about this, having to blink and having to put the pause on all of this.

So China will assume even more importance for him, quote unquote, winning that trade war. And remember, Trump is not someone who views international trade as win-win, as cooperation, coming to an agreement where both sides come out happy. He sees it as zero sum with a clear winner and a clear loser, and he will not want to be the first person to back down and quote unquote, lose this trade war against China.

So depending on what China does, I think is the real question about where this ends up, because I don't see Trump wanting to back down first. Jonathan, thank you very much. Thanks, Michael. After the break, Rachel Abrams talks to our colleague David Pearson about how China and its leader are likely to respond. We'll be right back.

David good morning. I should say you are in Hong Kong, which is 12 hours ahead of us here in New York City. And I do want to share that when this story about the new tariffs on China broke at around 2 PM Eastern time on Wednesday, we here at The Daily, we're debating how early is too early to call you and wake you up, 5 AM, maybe 6 AM. But being the generous colleagues that we are, we decided to let you sleep in. But nevertheless, it's early and thank you so much for being here with us. I'm so happy to be here.

Thank you. So while you were sleeping, Trump announced a pause on his so-called reciprocal tariffs everywhere except for China. And you cover China for the New York Times. You've been following the standoff between the United States and China very closely. Just to start off, were you surprised by the news when you woke up? So I was surprised that the terrorists were paused on most of the world, but I was not surprised that the terrorists were actually increased on China because we've seen such

a ratcheting up of this trade war between these two countries in the last week or so. And China is the only country that has decided to go toe to toe with Donald Trump. When the Trump administration slapped terrorists on them last week, China returned the volley with the same tariff on the United States. And then when Trump increased it again, China responded with the exact same levy. And now here we are today with a whopping 125% tariff on Chinese goods. And now we're waiting for China's response to that. Right. China will now be subjected to sort of a staggering figure, 125% tariff.

That number has just been going up and up and up. What is the state of play in this trade war at the moment? Like, what is China's appetite for negotiating right now? I think China wants this trade war to end. Its economy has been struggling for a few years now because of a property crisis. They've built too many houses and there aren't enough buyers right now. And so there's been a problem with deflation, with rising debt. And the only thing that's been driving growth in the economy is manufacturing and exports. And the biggest single market for China is the United States. About 15% of its exports go to the United States. Now that's a smaller share than it was a few years ago, but

it's still a massive part of China's business model. So basically, because China has all of their eggs in this export basket, so to speak, they're extremely vulnerable if all of those exports suddenly become much more expensive to export. Exactly. They're going to have to find new markets and there just isn't enough out there to absorb all these things that China usually sells to the United States. If a trade war is going to be so painful for China, potentially, why wouldn't they just be motivated to cut some kind of a deal? Like even if it's a deal that is really just a victory in name only for President Trump, why would they not be motivated to give that to him?

National pride and political legitimacy is on the line for China's leader Xi Jinping. He is not going to come to the negotiation table under duress. He wants China to be treated like an equal to the United States. He has built up an image of himself as a strong man in China, someone who's responsible for rejuvenating China's sort of greatness. And so he cannot afford to look weak at all. The legitimacy of his rule, of the Communist Party rests on him being able to stand up to the United States. So it really feels like you have two leaders of two of the world's largest economic powers who both feel like they need to project power. They cannot back down. They cannot capitulate. Any deal that they strike would need to save face. And all of that seems like sort of a bad combination from the standpoint of trying to de-escalate and strike some kind of a deal that's productive for both sides. So I'm curious, David, what could they do here? So China, of course, still has other levers that it can pull to inflict some pain on the

United States. There are still many big American companies that are invested in the Chinese market. It's something that American businesses have drooled over for decades. And they can go after those companies. It can also go after Hollywood. It could block more films coming into China. It could then also target some of the states that produce agricultural commodities that China imports from the United States. Those are generally states that voted heavily for Donald Trump. It could also decide not to allow a sale of TikTok, which has been a front burner issue for President Trump.

Lastly, and this is the most risky of the options, it could also devalue its currency to make its exports more competitive in the global marketplace. The problem with that though is it would raise tensions with other countries that are worried about Chinese overcapacity and having too many Chinese cheap goods flood their country. If both sides don't reach a deal and this whole thing does keep ratcheting up and escalating in the ways that we've already been seeing, what does that look like, just practically speaking, for both China and the United States? Well, from the United States, American consumers are just going to see prices go up. They're going to order things from Amazon and be shocked by what they're paying for

whatever you're ordering from China, which is a lot of things. From the Chinese side, this is going to make a bad economic situation even worse. That means higher unemployment, that means factories going idle, that means goods that are just sitting in warehouses and not being able to offload it onto other countries. But ironically, in the long run, this could actually help China. It could actually accelerate the one thing they really, really need, which is to reform their economy away from exports. They can't be this one trick pony.

They have to find a way to get more people in China to consume things kind of like Americans so that their economy is on a more sustainable footing. And the problem is the government knows this, but to make that reform requires painful changes that have been really slow and hard to make so far. This is also interesting because it is so similar to the arguments that Trump has been making. Like both of these leaders feel like what's happening now could be better

for each of their countries in the long term after some short term pain. Short term pain, long term gain. Yeah, that's true, except economists have been telling China that it needs to reform its economy for years, whereas economists in the United States are very skeptical about President Trump's plan and how it would bring manufacturing back to the United States. In the meantime, China would definitely prefer status quo because then it could work on reforming its economy without facing the pressure of a trade war. LARISA David, you've been watching this dynamic between

China and the United States for years. And what we've seen in the last few weeks and obviously in the last 24 hours represents just a massive disruption to that relationship. And I'm just curious what you think is the most fundamental shift that all of this represents. David – So right now we're still in the brinksmanship phase, I think, of the trade war. There's still some room where they're jockeying for some sort of acceptable solution where both leaders save face. But what this disruption has reminded us is that there's a chance these two largest economies

in the world could actually divorce what we call the coupling. And if that actually happens we'll speak of it as a sort of before and after times. To be sure we're not there yet but we're closer than ever before. And you have to think about the US-China relationship for the last five decades. The glue has been business. It is the bedrock of almost 50 years of bilateral relations. You take that glue away, then everything is on the table now. The two most powerful countries can't get

together and talk about all the other problems facing the world today like climate change, like pandemics, like financial crises, but it also means they can't get together and talk about things they disagree on, because they'll have less reason to, things like the fate of Taiwan, fentanyl, and human rights. And if China and the US aren't talking, if they're not engaging on these big issues, then we're suddenly plunged into a far more dangerous world. David thank you so much. Thank you Rachel.

We'll be right back. Here's what else you need to know today. On Wednesday, the House of Representatives passed legislation that would bar federal district judges from issuing nationwide injunctions, the latest attempt by Republicans to undercut judges who have blocked President Trump's agenda. Trump and his allies have been frustrated by how frequently district court judges have struck down his executive orders on issues ranging from deportations to mass firings at federal agencies.

But the bill faces an uphill battle in the Senate, where Democrats and moderate Republicans are expected to oppose it. Today's episode was produced by Claire Tennesqueda, Mary Wilson, Carlos Prieto, and Nina Feldman. It was edited by Maria Brann and Paige Cowan. Contains original music by Marian Lozano, Alicia Baitu and Rowan Niemisto. And was engineered by Alyssa Moxley. Our theme music is by Jim Brunberg and Ben Landsberg

of Wonderly. That's it for the Daily. I'm Michael Babarro. See you tomorrow.