The Damage From Trump’s Tariff Pause Is Already Done

Opinion|Do We Really Expect Investors to Forget What Just Happened?

Growing up in Florida, I lived through some bad hurricanes. The worst of them altered the shape of the land, destroyed islands and left channels that hadn’t existed before.

That’s what the past several weeks have felt like in my work as an economist and investor. Since President Trump took office in January, we saw a building storm that hit landfall last week on “Liberation Day.” Shockingly large and broad tariffs fueled investor concerns about economic growth, drove extreme market volatility and triggered a “dash for cash” that caused selling even in traditionally safe assets such as U.S. Treasury bonds and gold.

And then just as suddenly, the president announced a 90-day pause on most of the tariffs, offering hope that we’ve survived the worst of the storm. Fears of stagflation, meaning the toxic combination of lower growth and rising inflation, may abate. But as in the aftermath of a Category 5 hurricane, we may yet discover that the landscape has been fundamentally altered — potentially in ways that limit the growth of the American economy.

In financial markets, the most important place to check for damage is the market for U.S. Treasuries. The U.S. government bond market is by far the world’s largest. Treasury yields serve as an anchor for borrowing costs for American households and companies and for governments overseas. Hints of distress in Treasuries can quickly create contagion around the world and amplify investor worries about global growth back at home.

Not surprisingly, then, when the U.S. 30-year Treasury bond yield briefly rose above 5 percent before the tariff pause — its sharpest increase since 2020, according to Bloomberg — bond markets beyond America's borders reacted as well. Britain’s 30-year government bond yield spiked to its highest level since 1998.

Even if American tariff levels settle at a lower level than what was proposed on April 2, questions about what’s next, as well as the impact of the remaining tariffs, could keep growth and inflation uncertainty alive. The Minneapolis Federal Reserve president, Neel Kashkari, made that point this week when he wrote that “the shock to confidence could potentially have an even larger effect on the economy than the tariffs themselves.” And when people and businesses lose confidence, he continued, they tend to stop spending and investing.