Donald Trump has taken a risky, adventurous and aggressive step by raising tariffs on key US trading partners, and surprisingly, markets are responding positively. Amid the highest US inflation in four decades, Trump’s historically high import taxes seemed risky. Although economists criticise his trade policy for likely increasing costs for businesses and consumers, Trump’s unconventional approach is being seen as a short-term win.
His tactic of threatening steep tariffs, only to settle for lower ones, has led markets to interpret the results as victories. For example, after warning of a 25 percent tariff on Japan, Trump settled on 15 percent — higher than the 10 percent rate introduced in April, and far above the pre-Trump 1.5 percent level. Yet, markets rallied, with US stocks climbing and Japan’s markets soaring.
US Treasury Secretary Scott Bessent noted Trump’s often opaque strategy, while analysts pointed out that investors are relieved by the clarity the new deals offer. Trump appears to have "moved the goalposts", making outcomes look better than feared.
The rebound began on April 9 when Trump paused the so-called “Liberation Day” tariffs, which had sent markets into a sharp decline. Treasury officials, particularly Bessent, persuaded him to soften the blow. Since then, consumer sentiment has improved, and several trade moves have calmed investors: an exclusion of smartphones from China tariffs on April 12, a mid-May China deal slashing tariffs from 145 percent to 35 percent, and further pacts with the UK, Indonesia, the Philippines, and Japan.
Trump has also tackled non-tariff barriers such as digital services taxes that affect US tech firms. He forced Canada to withdraw an online tax by threatening tariffs, and his deals have opened new markets for US exports like beef to the UK, rice and cars to Japan, and various goods to Southeast Asia.
Still, long-term risks loom. Trump may raise the flat 10 percent tariff to 15 or even 20 percent next week. Higher tariffs could still harm both US and global economies, particularly as importers exhaust pre-tariff inventories.
Economists warn it's too early to gauge the full impact. The better-than-expected Japan deal suggests the White House is wary of pushing too far, fearing economic damage and backlash. Inflation is creeping up, earnings remain flat, and consumer sentiment is still below pre-tariff levels. The job market shows signs of strain, and the weakening dollar reflects concerns about future US economic health.
Markets may currently cheer the clarity, but they also signal caution: today’s certainty could give way to tomorrow’s instability.
