What Will Be The Impact Of The Pause That Wasn’t?

Yesterday, the Trump Administration blinked and pulled away from the most extreme implementation of its planned tariffs. And the markets at the time reacted favorably. There was only one issue: because the messaging was so confusing, and even high-level Administration members got the details wrong, it took hours to sort out the actual implementation details.

As a result, it wasn’t until after the market closed that people fully understood this wasn’t a pause in reciprocal tariffs. The real adjustment was that most of those tariffs, which were still implemented, were set at 10%. That 10% is still a significant increase over any existing tariffs that were already in place.

As a result of processing that information, market futures have been down from yesterday’s temporary rally. However, as we’ve seen, the Trump administration seems okay with a shaky stock market. While they will celebrate the gains, there isn’t a lot of evidence that losses will cause them to move.

However, the Trump administration has a much bigger problem: the Bond Market. One of the many suggested goals of Trump’s tariff plans (to the degree there is a plan) was to try to drive down bond interest rates to renegotiate our foreign debt.

The Trump administration has talked a lot about the yield on the 10-year Treasury, the benchmark for rates on mortgages and other common types of loans, as the president pledges to bring down borrowing costs for Americans. Data suggests more households are exposed to changes in interest rates than swings in the stock market, but the effect of tariffs on inflation might ultimately be the most impactful economic issue for voters. [source]

Unfortunately for the Administration, long term bond interest rates SPIKED after the tariff announcement last week, getting very close to the 5% threshold at one point. Yesterday, the President more or less admitted that the bond market was what ultimately led to the change in tariff policy:

And, for a little bit, the bond market seemed to react favorably to these decisions. However, like the markets, as the dust settled, reductions to bond interest rates began disappearing overnight. As I write this, the rate on the 10-year Treasury bond is approximately 4.35% (still significantly higher than it’s pre-announcement tariff announcement (4.1%).

If the bond market continues to rise, then we may very well see another “planned” change to the-not-really-a-plan plan. The only thing we can be certain for the next few weeks (at a minimum) is more uncertainty. And again, uncertainty is really bad for long-term business planning (i.e., trying to decide if folks are going to invest in moving production back to the US).