A dramatic shift in tone from President Donald Trump has markets breathing a sigh of relief—at least for now.
In a White House briefing Tuesday, President Trump backed off from his aggressive trade stance and threats to remove Federal Reserve Chair Jerome Powell, signalling a more moderate approach amid soaring market volatility and growing fears of economic fallout.
“145% is very high and it won’t be that high,” Trump said, referencing the tariff rate on Chinese goods. “It won’t be anywhere near that high. It’ll come down substantially. But it won’t be zero.”
These comments follow Treasury Secretary Scott Bessent’s remarks earlier in the day, where he warned that the U.S.–China trade war has effectively “embargoed trade” between the two economies. Bessent told a private JP Morgan investment conference that the current trajectory is “unsustainable” and suggested de-escalation was imminent.
Markets responded immediately: U.S. stock futures surged nearly 2% in after-hours trading, and Asian markets rallied overnight, with Hong Kong’s Hang Seng Index jumping 2.5%, Japan’s Nikkei 225 up 2%, and South Korea’s Kospi rising 1.5%.
China, for its part, has held firm. In retaliation to Trump’s tariff blitz, Beijing raised its own tariffs on U.S. goods to 125%, cracked down on American firms in key industries, and even returned Boeing jets. Trump, however, maintains confidence in his relationship with Chinese President Xi Jinping.
“No, no, we’re going to be very nice. They’re going to be very nice, and we’ll see what happens,” he said.
“Ultimately, they have to make a deal, because otherwise they’re not going to be able to deal in the United States, and we want them involved.”
“I think we’re going to live together very happily and ideally work together, so I think it’s going to work out very well.”
While the president expressed optimism, China made it clear that any talks must be based on “respect” and “reciprocity.” A Chinese official told CNN: “Trump may want to be his own negotiator, but this isn’t compatible with how China works.”
At the same event, Trump also addressed his escalating feud with Federal Reserve Chair Jerome Powell, whom he had recently blasted on social media.
“I have no intention of firing him,” Trump said.
“I would like to see him be a little more active in terms of his idea to lower interest rates.”
“We think that it’s a perfect time to lower the rate, and we’d like to see our chairman be early or on time, as opposed to late.”
Trump had previously said Powell’s “termination cannot come fast enough” and labeled him “a major loser”—rhetoric that rattled financial markets and raised serious concerns about Fed independence.
“Whether this reflects Monday’s brutal foretaste of what would happen in markets if he did try to fire Powell, or was the plan all along, it is a clear positive,” wrote Krishna Guha, Vice Chairman at Evercore ISI.
“It materially reduces the likelihood of worst-case outcomes including stagflation and the morphing of the tariff crisis into a sovereign debt crisis, though these risks remain.”
Still, the uncertainty hasn’t lifted completely. The Fed is expected to keep interest rates on hold at its next meeting in two weeks, citing concern that Trump’s tariffs could reignite inflation while slowing growth.
Meanwhile, futures traders are now pricing in three quarter-point Fed rate cuts this year, down from four previously expected.
The International Monetary Fund also weighed in Tuesday, slashing its U.S. and global growth forecasts. The reason? Trump’s trade war, which the IMF says remains the key risk to economic stability.
Trump’s sudden softening on both Powell and China tariffs has provided temporary relief for markets—but risks of volatility and recession remain firmly in play.
