Why Trump decided to take the win and paused tariff war

Donald Trump finally decided to take the proverbial “win” on trade and the stock market rallied nearly 3,000 points.

You can thank the bond market, with an assist from Treasury Secretary Scott Bessent, for making it happen.

We have been hyper-focused on how the stock market dropped ever since Trump declared trade war on the entire world, how he kept upping the ante, demanding ever higher degrees of compensation from our trade partners, even those who appeared to be acting in good faith and wanting to negotiate peace.

Trump’s trade intransigence was a reflection of his own oft-stated desire to level the playing field, ending our perpetually large trade deficits with the world.

Also certainly in the back of his “art-of-the-deal” mindset was an attempt to maximum leverage in negotiations.

He was also goaded by two of the most hawkish and protectionist advisers to have ever set foot in the White House: Howard Lutnick, the commerce secretary, and Peter Navarro, who holds the title as senior counsel to the president.

Pushed aside, until recently that is, was Scott Bessent, a veteran Wall Street financier who sought a middle ground, doing deals with countries but not engaging in outright war.

The hawks seemed to be firmly in control even as markets around the world continued to crater, the US stock indices losing trillions of dollars in value.

Trump continued to ignore olive branches from the EU, which stated publicly it wanted zero tariffs with the US on many goods; Trump even kept toying with Israel, one of our closest allies, after Prime Minister Benjamin Netanyahu told him he’d eliminate all tariffs on US goods, wipe out the trade deficit with the US.

That long game came to an end Tuesday night in the form of a bond market rout for the ages.

Main Street can weather some stock market falls.

But the US has $36 trillion in bonds in circulation, much of it in foreign hands, that we use to finance government operations.

The bond market is also the plumbing of the economy because it also sets interest rates on consumer and business loans.

If the US can’t sell its debt, it can’t pay for stuff like Social Security, the military or plug our enormous deficit.

In other words, when bond prices fall and their interest rates spike, it could spell economic disaster.

That’s what the bond market was signaling Tuesday night, real panic as the yield on the 10-year bond shot to 4.51%; the yield on the 30-year bond jumped above 5%.

Someone was unloading bonds en masse amid the trade turmoil.

A recent Treasury auction didn’t go so well, adding to upheaval.

Market experts speculated hedge funds were unwinding some complex trades.

Even worse, I was told by the CEO of a major financial institution that one of our biggest foreign holders of treasuries, the Japanese, were unloading US debt in huge quantities.

Many fingers pointed to China, our long term adversary economically and militarily, but it was a friendly country, selling in huge quantities and sending interest rates into dangerous territory.

That type of instability clearly made an impression on Bessent, I am told.

What happened next is one for the history books.

It was Bessent, not Lutnick or Navarro, who held a press conference Wednesday saying our trade war with the world — except a hyper belligerent China — was over, or at least on pause.

He attributed it to Trump’s negotiating style, playing the long game and getting people to the table to discuss lowering trade barriers.

It’s a win that Wall Street is pleased Trump took.