By pausing his trade war with China, has Donald Trump actually played a blinder?

Hot on the heels of last week’s trade agreement with the UK – consider it the hors d’oeuvre – Donald Trump, America’s tub-thumping president, has delivered a much bigger main course: a potential deal with China.

The two nations, which had elevated tariffs on each other’s exports to absurd levels – the US imposing a levy of 145 per cent on Chinese imports, China charging 125 per cent on goods from the US – have agreed a temporary pause.

These tariffs, announced during the trade war that escalated between the pair in recent weeks, are gone – for now – and some of Trump’s “Liberation Day” charges have been suspended. China – again, for 90 days – is offering concessions of its own. However, the charges imposed before 2 April remain in place.

According to research consultancy Capital Economics, what this means in practice is that the effective US tariff on goods from China will fall to around 40 per cent, after product exclusions are factored in. The effective tariff rate on goods imported by China from the US reduces to around 25 per cent. So in effect, for exporters, the Himalayas have been traded in for the Alps. Which are still tough to climb.

What happens next will depend on the talks, and there are no guarantees even if the markets think it’s all over. They were delighted, with Hong Kong’s Hang Seng particularly frothy. It shot up by nearly 3 per cent, surging through the 23,000 point barrier, leading a global charge. In Europe, Germany’s Dax and France’s Cac 40 also both jumped.

The reaction of Britain’s FTSE 100 was more muted, but it has lately outperformed because of its perceived defensive qualities. However, it was still ahead. American markets were, of course, thrilled. Wall Street’s week started with quite the party.

The oil price also headed north. The hope – and I would caution against categorising it as anything more than that – is that this will serve to boost global growth, with some of the darker scenarios envisaged by economists now appearing much less likely. The clouds have lifted a little.

The benefits to Trump are obvious. Futures markets raised the probability of a cut in US interest rates – which was desired by the president, the US economy and all those involved in it, because it would stimulate growth. Cutting the tariffs should reduce some of the inflationary pressures the US faces, ease the burdens imposed on its consumers and businesses, and provide a much-needed shot in the arm for trade.

Two cuts are now expected from the US Federal Reserve. However, markets think a third reduction – once seen as all but nailed on – remains unlikely, with the chance put at roughly 30 per cent.

Note that Trump is to impose higher tariffs on China than China is on the US – this is similar to the situation between America and the UK, where most British exports will remain subject to Trump’s new basic tariff of 10 per cent despite last week’s much-ballyhooed deal.

Trump will doubtless categorise this as a victory, and as having been the plan all along. It could secure improved terms from his villains – China was always top of the list – with the residual tariffs remaining in place, putting America first and restoring its manufacturing clout.

To call this a plan, however, is pushing it. The Trump administration has given every impression of making it up as it goes along. A case in point: the auto industry, one of the supposed chief beneficiaries of the tariffs, has been crying blue murder. Import levies on overseas parts ended up getting eased after their imposition following pleading from its lobbyists, who pointed to the severely negative impact on the sector.

The in-out nature of the tariffs on America’s biggest trading partners – its neighbours – provides another example. The levies imposed on Canadian and Mexican imports were similarly paused before being brought back with a vengeance (ditto the retaliation).

It is quite possible that, in 90 days’ time, we will be back to square one, with the US and China once again sending the levies imposed on each other’s goods into near-Earth orbit, to the detriment of both.

In the meantime, the US consumer will continue to pay the price thanks to the higher inflation the tariffs will deliver, when what they really need is more competition, not less. Too many of the sectors serving them are highly consolidated, dominated by large and lazy corporations, shielded from disruption by their very size.

The markets’ jubilation should therefore be tempered. This isn’t over by any means, and Trump has proved that there is no way to predict how it will go, or when – even if – it will end. There is no plan here. The global trade rollercoaster has slowed, but it could oh so easily speed up again. And it probably will.