Tariff war eases, risk assets soar: A look at the market's future through Trump's management history

Written by: Luke, Mars Finance

On May 12, 2025, the global market welcomed a turning point. The Chinese Ministry of Commerce released a joint statement on the China-U.S. Geneva trade talks, announcing a 90-day suspension of additional tariffs on U.S. goods, retaining a 10% basic tax rate, and canceling non-tariff countermeasures since April 2. The United States promised to adjust tariffs on China before May 14, suspending some rates, retaining the 10% baseline tariff, and withdrawing the additional tariffs from early April. As soon as the news broke, risk assets collectively surged: U.S. stock futures soared, the 10-year Treasury yield hit recent highs, and the cryptocurrency market stirred up a frenzy.

This scene is not an accident, but rather another precise maneuver by Trump since he took office in the White House for the second time on January 20, 2025. Like a seasoned operator, Trump has directed a global economic drama using tariffs, negotiations, and policy adjustments. Every step he takes is meticulously calculated, both stirring market nerves and vying for maximum benefit for the United States. With the tariff war coming to a temporary halt, what is hidden behind the market frenzy? How does Trump's historical maneuvering guide the future? This article will outline the policy context of 2025, analyze the economic and market impacts, and project future developments.

Market Opening: Exploration and Layout (January 20, 2025 – End of February)

January 20: The "America First" memorandum kicks off.

On his first day in office, Trump signed the "America First Trade Policy Memorandum," reaffirming a protectionist stance. The memorandum did not directly impose tariffs but announced a review of trade deficits and unfair trade practices, paving the way for subsequent policies. This cautious start both reassured the markets and sent a warning to trading partners.

Trump aims to take the initiative and avoid early conflict. The US dollar index rose by 1.2%, reflecting market expectations for strong US trade. Global stock markets remain stable as investors await further developments.

January 31: Tariff Raid between North America and China

At the end of January, Trump struck hard, announcing a 25% tariff on goods from Mexico and Canada and a 10% tariff on goods from China, citing trade deficits and border immigration issues. He invoked the International Emergency Economic Powers Act (IEEPA), laying the groundwork for a possible "economic emergency." Mexico and Canada protested strongly and threatened retaliation.

This move aims to force neighboring countries to compromise on immigration and trade. U.S. retail and automotive supply chain-related stocks fell by 1.5%, while the Mexican peso and Canadian dollar dropped by 3% and 2%, respectively. China responded with a 10% reciprocal tariff, maintaining restraint. While the policy successfully applied pressure, it cast a shadow over the United States-Mexico-Canada Agreement (USMCA).

February 13: The concept of "reciprocal tariffs" makes its debut.

In mid-February, Trump proposed a "reciprocal tariff" plan, aiming to align U.S. tariff rates with those of trade partners to reduce the trade deficit, which could reach as high as $813.8 billion in 2024. The policy was not immediately implemented but clearly targeted the European Union and Japan.

Intended to facilitate negotiations through threats. The euro fell to a two-year low of 1.03, and U.S. manufacturing stocks rose by 2%. Economists warn that tariffs could raise import costs, laying the groundwork for inflation risks.

Trading Surge: Tariff Storm (March - April 2025)

March 4: Repeated Game of Tariff Threats

At the beginning of March, Trump showcased the cunning of a manipulator. He first announced a 25% tariff on Canada and Mexico, and just a few hours later retracted the statement citing progress in immigration negotiations, but reiterated the threat that evening. The market was taken by surprise, with S&P 500 futures dropping 1.8% during trading.

Repeatedly pressuring neighboring countries to negotiate through policy. The panic index VIX surged to 25, North American exporters are busy hedging currency risks, and US retailers warn of rising consumer goods prices. While this move accelerates negotiations, it undermines investor confidence.

April 2: "Liberation Day" Tariff All-Out War

On April 2, Trump reached a climax. He signed Executive Order No. 14257, announcing a 10% baseline tariff on all imported goods starting April 5, and an additional tariff of 20% to 49% on 34 economies including the EU, Japan, and India. The tariff on Chinese goods is as high as 54%, consisting of a 34% counterpart tariff and a 20% fentanyl-related surcharge. Executive Orders No. 14259 (April 8) and No. 14266 (April 9) further intensified restrictions on specific Chinese goods.

Aimed at reducing the trade deficit and boosting manufacturing. The global market has plummeted, with Nasdaq futures dropping by 4%. China retaliates with an 84% tariff, while U.S. import prices increased by 2.1% month-on-month in April, raising inflation expectations. Although the policy shows a tough stance, it raises concerns about stagflation.

April 9: Flexible Adjustments and Increased Commitment to China

In the face of market turmoil, Trump quickly changed tactics. On April 9, he suspended equal tariffs for 75 non-retaliatory countries for 90 days, reducing the tax rate to 10%. However, tariffs on Chinese goods soared to 145% (125% equal + 20% related to fentanyl). On April 11, exemptions were granted for electronic products such as smartphones and chips, alleviating pressure on the consumer market.

Show flexibility, seek allies' support, while isolating China. Global stock markets rebound, with the MSCI World Index up 2.5%. Chinese export stocks dropped by 5%, and US tech companies breathed a sigh of relief due to the exemption. Sino-US trade relations further deteriorated.

Market Turning Point: Geneva Eases (May 2025)

May 12: The tariff war comes to a temporary end.

On May 12, China and the United States reached an agreement in Geneva. China will suspend the imposition of additional tariffs on certain US goods for 90 days, retaining a 10% tax rate and canceling non-tariff countermeasures that have been in place since April 2. The United States has committed to suspending some tariffs on China by May 14, retaining a 10% tax rate, and withdrawing additional tariffs imposed on April 8 and April 9. This compromise buys time for negotiations.

Trump used a calming approach to stabilize the market and pave the way for subsequent negotiations. U.S. stock futures and Treasury yields rose, and risk assets generally increased. The agreement alleviated the risk of a full-blown trade war, but the 10% tariff will still raise costs, leaving future negotiations fraught with uncertainty.

The trader's ledger: what are the gains and losses?

Trump's policies are like a high-stakes trade, with clear objectives but complex outcomes:

Trade deficit: Tariffs have forced Canada and Mexico to make concessions on immigration and trade, but the $813.8 billion trade deficit from January to November 2024 has not significantly improved. The resilience of the Chinese economy has limited the effect.

Manufacturing: In the first quarter of 2025, factory orders increased by 1.8%, but supply chain disruptions and high costs offset the gains. Some companies are shifting production to Southeast Asia, undermining the "re-shoring" goal.

Market volatility: Policy uncertainty raises volatility, with the average VIX reaching 20 in the first quarter of 2025, up from 15 in the fourth quarter of 2024. Speculators profit, while long-term investors' confidence is shaken.

Strong Dollar: The US Dollar Index rose by 5%, enhancing export competitiveness, but emerging market currencies are under pressure, with the Mexican Peso dropping by 16%.

The U.S. Economy Under Easing Tariffs: Opportunities and Challenges

The May 12 tariff deal brought a breather to the U.S. economy. The 10% tariffs retained by both sides will continue to push up the cost of imports, with CPI rising 3.8% year-on-year in April 2025 and clothing and electronics prices likely to climb further. The consumer market was weak, with retail sales rising just 0.2% in February, and low- and middle-income households cutting back on a 4% rise in the cost of living. Soybean exports to China fell 20% year-on-year, putting pressure on agriculture.

However, the agreement also brings opportunities. Supply chain pressures are easing, and tech giants like Apple are expected to stabilize their second-quarter profits, boosting market confidence. In the first quarter of 2025, U.S. economic growth is projected at 2.1%. If negotiations continue to progress, supply chain optimization and production reshoring could support a potential growth of 3%. However, if tariffs remain in place in the long term, Fitch Ratings warns that GDP could decrease by 0.5% in 2026, casting a shadow of historical protectionism.

In the long run, Trump's maneuvering logic tends to exchange short-term pressure for long-term gains. If the China-US negotiations break through, an improvement in trade balance may offset inflation risks; if the deadlock continues, the risk of stagflation will intensify, and economic growth may fall to 1.5%.

The Federal Reserve's Predicament: When to Cut Interest Rates?

The Federal Reserve is walking on thin ice amid the policy fluctuations of Trump. Since September 2024, the federal funds rate has been cut three times to 4.25%–4.5%. However, inflationary pressures from tariffs have forced the Fed to be cautious. On January 30, 2025, Powell announced a pause in interest rate cuts, and the dot plot predicts that core PCE inflation will reach 2.8% in 2025.

The market expects the Fed to keep interest rates unchanged in June 2025 and observe the impact of tariffs. If the CPI breaks through 4% in the summer, the rate cut may be postponed until 2026, increasing the risk of a "hard landing" for the economy (60% probability). But if consumption and employment deteriorate – retail sales grew by just 0.2% in February and the unemployment rate rose to 3.9% – the Fed could cut interest rates by 25 basis points in September 2025 to spur growth.

Trump's style of maneuvering may further complicate Federal Reserve decisions. If he shifts towards domestic stimulus policies (such as tax cuts), inflationary pressures will intensify, forcing the Federal Reserve to extend the high interest rate period; if trade negotiations succeed, easing inflation may open a window for interest rate cuts.

Risk Assets and the Crypto Market: Booms and Concerns

The easing of tariffs has ignited a surge in risk assets. U.S. stocks, commodities, and cryptocurrencies are all rising, with market sentiment soaring. The cryptocurrency market is particularly active, due to reasons including:

Inflation Hedge: Tariffs drive up prices, and investors view crypto assets as a tool against inflation, similar to gold (April price reached $2700/ounce).

Technology Linkage: The exemption of tariffs on electronic products boosts technology stocks, indirectly increasing the popularity of blockchain projects.

Speculation Driven: Trump's policy fluctuations stimulate trading, with a 15% surge in trading volume on cryptocurrency exchanges in April.

In the short term, the crypto market will continue to thrive, benefiting from a rebound in risk appetite. However, the long-term trend depends on the macro environment. If the Federal Reserve delays interest rate cuts and Treasury yields rise, risk assets may pull back, and the crypto market could see a 20% correction. If the dollar weakens or Trump introduces crypto-friendly policies (such as regulatory easing), the market may welcome a new round of growth in the fourth quarter of 2025, with some asset prices doubling.

Trump's manipulation history suggests that market fluctuations will be the norm. His policy reversals may continue to fuel speculative sentiment, but they also increase the risk of corrections. Investors should be wary of the potential impacts of a slowing global economy.

The next step for the operator: market forecast

Trump's 2025 is like a multidimensional chess game. He uses tariffs to pressure opponents and eases to stabilize the market, always maintaining the initiative. From his operational logic, the following scenarios may emerge in the future:

Deepening Negotiations: Trump may take advantage of the window of tariff moderation to push for a broader trade agreement between the U.S. and China in exchange for concessions from China on technology transfer and market access. This will boost the U.S. economy and markets, but caution is needed regarding potential retaliatory measures from China.

Policy Shift: If trade negotiations are hindered, Trump may turn to domestic stimulus, such as large-scale infrastructure projects or tax cuts, to boost voter support. This will increase the deficit and inflation, forcing the Federal Reserve to tighten policies, putting pressure on risk assets.

Unexpected escalation: Trump's unpredictability means that he could restart tariffs or introduce new policies at critical moments, causing violent market shocks. This "black swan" requires investors to remain highly vigilant.

In any scenario, Trump's maneuvering will profoundly impact the global economy. In the short term, easing tariffs will support the surge in risk assets; in the long run, the balance between inflation and growth will determine the fate of the market.

Ending: The game of the operator is not over.

Trump has reshaped the global economic landscape of 2025 with the posture of a manipulator. The easing of the tariff war is merely a halftime break in the chess game, and the 10% tariff bottom line indicates that the game is still ongoing. The U.S. economy is moving forward in a tug-of-war between inflation and growth, with the Federal Reserve's interest rate decision hanging in the balance, and the crypto market swaying between euphoria and risk. What will Trump's next step be? Will he continue to wield the tariff stick, or will he turn to new deals? The global market holds its breath, and the answer may have already been in his hands.