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The Trump administration took a step back from the tariff brink Wednesday, pausing implementation of country-specific “reciprocal” tariffs that had stocks in a tailspin and interest rates soaring this week.
Stocks rebounded and pressure on interest rates eased after Trump decreed on Truth Social that while he’s raising duties on goods from China to 125 percent, he will pause country-specific “reciprocal tariffs” on dozens of other countries for 90 days.
While the Trump administration has been talking about tariffs for months, markets were taken by surprise by the breadth and depth of the tariffs announced on April 2.
The 10 percent baseline that took effect Saturday, April 5, applies to almost all U.S. trading partners — regardless of whether they impose tariffs on American goods or have a trade surplus with the U.S.
The brief implementation of even higher country-specific “reciprocal” tariffs Wednesday had many economists warning that disruption of supply chains and retaliation by U.S. trade partners could lead to a recession.
Trump said that, with the exception of China, he’s paused the reciprocal tariffs after more than 75 countries indicated a willingness to “negotiate a solution to the subjects being discussed relative to trade, trade barriers, tariffs, currency manipulation, and non-monetary tariffs.”
China announced a retaliatory 84 percent tariff on U.S. goods on Wednesday, and the European Union announced “countermeasures” to take effect April 15.
The White House said that the baseline tariff of 10 percent on imports from most U.S. trading partners will remain in effect.
KPMG Chief Economist Diane Swonk estimated that the 10 percent baseline tariff plus the newly-announced 125 percent tariff on Chinese-made goods will result in a record 30.5 percent effective tariff rate across all U.S. imports — higher than the rate announced on April 2.
But Trump’s Truth Social announcement had an immediate impact on stock markets and interest rates, sending the Dow, S&P 500 and NASDAQ stock indexes soaring and relieving pressure on Treasury yields.
Last week’s stock market selloff helped bring mortgage rates down in a “flight to safety” to government bonds, and borrowers responded.
Mortgage applications jumped last week to the highest level since September 2024, with purchase loan applications up 24 percent from a year ago and requests to refinance up 93 percent, according to a weekly survey of lenders by the Mortgage Bankers Association.
But this week, interest rates had been headed up sharply on fears that the U.S. will need to borrow more money if the economy falters, diminishing hopes that lower mortgage rates might at least be a silver lining if the economy slows.
After dropping to a 2025 low of 3.89 percent Friday, yields on 10-year Treasury notes rocketed back up by more than half a percentage point, touching a high of 4.47 percent Wednesday. After Trump reversed course and paused country-specific tariffs, yields on 10-year Treasurys dropped 13 basis points, to 4.34 percent.
Trump had been keeping an eye on the dramatic moves in bond markets, New York Times reporter Tony Romm noted.
“The bond market now is beautiful,” Trump said Wednesday in a clip posted by Romm. “I saw last night where people were getting a little queasy.”
Rates on 30-year fixed-rate conforming mortgages, which also hit a low for the year of 6.48 percent Friday, were approaching 7 percent Wednesday after climbing 23 basis points on Monday and Tuesday, according to rate lock data tracked by Optimal Blue.
Although Optimal Blue data lags by a day, rates tracked by Mortgage News Daily showed rates for 30-year fixed-rate loans climbing another 15 basis points on Wednesday, to 7 percent.
While investors usually view government bonds and mortgage-backed securities (MBS) as a safe place to park their money during a stock market downturn, more supply and less demand for such investments pushes interest rates up.
Mortgage rates rebound
Interest rates were headed back up this week in part due to fears that the U.S. government would be forced to ramp up borrowing if a trade war and recession reduce revenue, Mortgage News Daily Chief Operating Officer Matthew Graham wrote Wednesday.
“Lower revenue and recessions both imply higher Treasury issuance and thus, higher yields,” Graham said.
A rapid slowdown in trade would also lower the demand for U.S. Treasurys among foreign central banks, Graham said. Increased supply and reduced demand for government bonds and mortgage-backed securities (MBS) that fund most home loans pushes their price down, and yields up.
Many investors had hoped that the country-specific tariffs announced on April 2 and briefly implemented on April 9 were simply a negotiating tactic.
Treasury Secretary Scott Bessent appeared on Meet the Press Sunday, saying a recession is not inevitable and that more than 50 countries “have approached the administration about lowering their non-territory barriers, lowering their tariffs [and] stopping currency manipulation.”
But the White House has given conflicting signals on whether the reciprocal tariffs were simply a negotiating tactic, with Trump trade advisor Peter Navarro telling Fox News viewers on Sunday that, “This is not a negotiation. This is a national emergency based on a trade deficit that’s gotten out of control because of cheating.”
The reciprocal tariff formula published by the Office of the U.S. Trade Representative was criticized by some of the researchers cited by the Trump administration as simplistic. The formula also appears to have a serious math error that makes the tariffs much bigger than they should be, American Enterprise Institute economists Kevin Corinth and Stan Veuger wrote Friday.
In calculating the impact that tariffs would have on demand, the Trump administration mistakenly used retail prices instead of import prices, Corinth and Veuger said in an April 4 analysis.
“Correcting the Trump Administration’s error would reduce the tariffs assumed to be applied by each country to the United States to about a fourth of their stated level, and as a result, cut the tariffs announced by President Trump on [April 2] by the same fraction, subject to the 10 percent tariff floor,” Corinth and Veuger wrote. “For all but a few countries, the (reciprocal) tariff would be exactly 10 percent, the floor imposed by the Trump administration.”
For now, some goods from Mexico and Canada are exempt under the the United States-Mexico-Canada Agreement (USMCA) — a “major win” for homebuilders, the National Association of Home Builders (NAHB) said last week. The auto industry will must still contend with 25 percent duties on steel, aluminum and automobiles.
The NAHB estimates that about 25 percent of softwood lumber used to frame houses in the U.S. comes from Canada, and homebuilders are also dependent on gypsum, concrete and appliances imported from Mexico.
NAHB Chairman Buddy Huges said the group “is pleased President Trump recognized the importance of critical construction inputs for housing and chose to continue current exemptions for Canadian and Mexican products, with a specific exemption for lumber from any new tariffs at this time.”
A Biden-era 14.5 percent tariff on Canadian lumber remains in effect, and builders expect higher duties being implemented by the Trump administration will impact the cost of other imported building materials like steel, aluminum and copper. Builders surveyed in March were expecting tariffs would increase the cost of building a home by $9,200, on average.
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