The stock market staged a brief rally on Tuesday on hopes that President Donald Trump would pivot from raising tariffs to cutting deals, before sinking amid renewed tough talk from administration officials. The S&P 500 index closed down 1.5%, bringing its total loss since Trump’s mid-February trade offensive to nearly 20% - the technical threshold for a bear market.
Stocks jumped nearly 4% in the first hour of trading after Treasury Secretary Scott Bessent told CNBC that nearly 70 countries had approached the United States about negotiating trade barriers. The next escalation in U.S. tariffs was just hours away. But Trump fueled the upbeat mood with a social media post describing a “great call” with South Korea’s acting president about a potential bargain.
Yet, the market rebound soon fizzled.
On Capitol Hill, some of the president’s top aides tried to clarify the murky boundaries of the trade war.
Trade deficit
Jamieson Greer, the president’s chief trade negotiator, described the nation’s $1.2 trillion trade deficit as an emergency requiring “urgent” action to reshape the U.S. economy. He dismissed lawmakers’ concerns about consumer and business costs, telling the Senate Finance Committee, “The president is fixed in his purpose.”
Bessent, meanwhile, sought to ease Republican concerns that Trump’s aggressive trade stance could trigger a politically dangerous recession. During a one-hour meeting hosted by House Majority Whip Tom Emmer, R-Minn., Bessent briefed lawmakers and Jay Timmons, head of the National Association of Manufacturers, on plans for a manufacturing revival.
One week after Trump announced the highest import taxes in more than a century, investors, companies and lawmakers are still trying to determine his endgame. For now, the administration says the president is pursuing twin goals: imposing tariffs to encourage domestic manufacturing and entertaining offers from other nations to reduce barriers to U.S. goods.
Despite growing criticism from lawmakers and CEOs, administration officials say they feel vindicated by the eagerness of foreign leaders hoping to avoid U.S. tariffs by striking deals. In her daily press briefing, White House Press Secretary Karoline Leavitt struck a combative tone.
“America does not need other countries as much as other countries need us,” she said.
Strategy is already paying off
Trump’s high-risk approach is already working, Greer said, citing recent investment announcements from automakers and manufacturers expanding U.S. operations. Officials from Argentina, Vietnam and Israel have also signaled they will reduce tariff and regulatory barriers to U.S. exports.
Greer and others are engaged in talks with countries such as Japan and South Korea.
But there is no immediate prospect of talks with the country at the center of U.S. trade grievances: China. After China imposed a 34% tariff on U.S. goods in response to Trump’s April 2 announcement, Trump retaliated with an additional 50% tariff atop earlier levies.
Starting at 12:01 a.m. on Wednesday, American importers of some Chinese goods will pay tariffs as high as 129%.
Greer said the administration was “disappointed” by China’s failure to uphold the 2020 “phase one” trade deal signed during Trump’s first term. The agreement had committed Beijing to large purchases of U.S. farm, energy and manufactured products. But amid the early COVID-19 outbreak, China failed to meet those pledges.
After Trump unveiled the new 50% tariff, China’s Commerce Ministry called the decision “a mistake on top of a mistake.” If the United States waged a trade war, the ministry said, China would “fight to the end.”
China ‘panicked’
Administration officials say they have the upper hand over Chinese President Xi Jinping, noting that Americans buy about three times more from China than Chinese consumers buy from the U.S. Trump said China “panicked” in choosing to retaliate.
“The president believes that Xi and China want to make a deal. They just don’t know how to get that started,” Leavitt told reporters.
Still, the administration’s chaotic nature has overshadowed its policy aims. A growing feud between Elon Musk and White House trade adviser Peter Navarro spilled into public view in recent days.
After Navarro dismissed Musk in a CNBC interview as a “car assembler” rather than a true manufacturer, the Tesla CEO lashed out on X, calling Navarro “dumber than a sack of bricks” and “Peter Retarrdo.”
Leavitt praised the exchange as a display of transparency.
“Boys will be boys, and we will let their public sparring continue,” she said.
During Greer’s congressional testimony, several senators asked whether U.S. companies would be granted tariff exclusions for products unavailable from domestic suppliers. Greer said no.
“The president does not intend to have exclusions,” he said. “We’re trying to remedy a situation that’s persisted for many years.”
Short-term economic costs
Although supportive of the administration’s goals, Republican senators on the Finance Committee expressed concerns over short-term economic fallout.
Sen. James Lankford, R-Okla., said a constituent had moved his supply chain from China to Vietnam in response to Trump’s first-term trade policy, only to face a new 46% tariff on Vietnamese goods.
Cattle ranchers in Montana were troubled by a 92% drop in Chinese purchases of U.S. beef last month, as the trade conflict escalated, according to Sen. Steve Daines, R-Mont.
Sen. Thom Tillis, R-N.C., said he was “skeptical” the administration could wage trade wars with multiple countries at once.
“This is creating some anxiety,” said Sen. Todd Young, R-Ind.
Several major tech stocks that had surged early in the day joined the broader retreat by afternoon, with Alphabet, Amazon, Apple and Tesla finishing in the red.
Market analysts described Tuesday’s initial rally as a natural bounce following weeks of losses, capped by the steepest three-day sell-off in years.
With tariff negotiations underway, markets “may be an important step closer to finding an equilibrium,” Mark Zabicki, chief investment officer at LPL Financial, wrote in a Tuesday research note.
Some Asian and European indexes rebounded on Tuesday, despite Chinese threats of escalation.
Germany’s DAX gained about 2.5%, and London’s FTSE 100 rose 3.3%. Japan’s Nikkei 225 jumped 6%, while Hong Kong’s Hang Seng Index and India’s Sensex each climbed 1.5%.
But markets in several Southeast Asian nations, more vulnerable to global trade disruptions, posted sharper losses. Vietnam and Indonesia fell more than 7%, Thailand’s index dropped over 4% and Taiwan’s Taiex declined 4%.