The Craziest Tariff Day in History: 9 April 2025

Grievance-fuelled tariffs had collided with financial market reality, and reality won.

By Richard Baldwin, Professor of International Economics, IMD Business School.

On a single day, US President Donald Trump did something that shouldn’t be possible. He delivered the largest tariff increase in American history and reversed it within hours.

On 9 April 2025, a week after having announced them in the Rose Garden, the President raised the US average tariff rate to 21%, according to the calculations of the Yale Budget Lab, up from about 4% the month before.[i]

That seventeen percentage points hike handed Donald Trump the American record for the highest tariff rise in history.

This episode was not an isolated policy misstep. It was the opening shock of the much larger story. This column is based on Chapter 5 of my eBook, World War Trade.

Average tariffs were higher in the 19th century as the left panel shows, but the change in the annual average was largest in 2025 as the right chart shows. The chart is based on annual averages, so we cannot see the short-lived 17% April hike, but the fact that the first and second largest annual changes were in the order of five percentage points puts the seventeen-point raise into perspective.

Just past midnight, Wednesday 9 April 2025.

At one minute past midnight on Wednesday 9 April 2025, the tariffs the President had announced the previous week went into effect.

Financial markets were not happy. Financial markets looked set to do something historic in the worst sense of the word.

US markets were closed when the tariffs went live, but Asian markets had been trading for hours. Screens across Tokyo, Seoul, Hong Kong and Singapore were flashing red. Markets were falling, feeding panic that fed panic.

Things had been getting worse for a week for a very simple reason. There were no guardrails. No explanation. Markets didn’t see strategy. They saw rupture.

The announced tariffs were far larger, broader and weirder than anyone had anticipated. Why did China get 34%, while Lesotho got 50%? Why did Cambodia get 49%, while Russia wasn’t even listed?

There was no clarity about whether the tariffs were temporary or permanent. No acknowledgement that the President was torching the global trading system.

Global stock markets fell from the moment the tariffs were announced on Wednesday 2 April 2025. By that evening, Nasdaq 100 futures had dropped 4.7%. The S&P 500 futures had fallen 3.9%.

The next day was really bad. The S&P 500 recorded its third-largest daily loss in history on 3 April. April 4th was worse. The S&P 500 recorded its second largest drop in history.

But worse than the drop was the way markets were crashing.

Financial panics usually follow a familiar script. Risky assets fall. Safe assets rise. US Treasuries rally. The dollar strengthens, even when the trouble starts in America. This script was a comfort when things got uncomfortable.

In that fateful April week, the script was cast aside. Equities plunged. The dollar fell. The combination was rare. It was unsettling for seasoned market participants, including two of the President’s senior officials.[ii]

Secretary of the Treasury Scott Bessent and Secretary of Commerce Howard Lutnick had seen this movie. Both were working in financial markets in 2008 when the Global Financial Crisis exploded and led to the biggest economic decline since the Great Depression.

On the morning of 9 April, markets were not just pricing a downturn. They were questioning the stability of the USA. This didn’t look like a dip. It looked like the start of a meltdown.[iii]

The danger was not that markets were falling. They fall all the time. The danger was that they were falling without a floor.

For Scott Bessent and Howard Lutnick, the conclusion was inescapable. This was one of those moments when hesitation became hazardous. If 9 April ran unchecked, Donald Trump might earn a place in history as the author of the “Great Recession of 2025”.

This could not be allowed to “play out”. It could not be managed with a press conference. It had to be stopped. And that meant suspending the tariffs. But there was a roadblock: Peter Navarro. According to The Wall Street Journal, the administration’s most ardent tariff hawk had hovered around the Oval Office almost continuously since 2 April 2025.

Bessent and Lutnick leveraged a gap in Navarro’s schedule to meet with the President privately and convinced him to suspend the tariffs. They stayed in the room until Donald Trump announced the suspension on social media.

The relief was instantaneous. The S&P 500 jumped by nearly 10% in a single session. The Nasdaq rose even more. Treasury yields eased. The dollar stabilised. The alarm bells stopped ringing.

For most presidents, such a reversal would have been politically costly. For this President, it was recast as strategy.

Officials immediately recast history to make the retreat look like victory. They claimed that the climbdown had been part of Plan A all along. Scott Bessent immediately told reporters: “We saw the successful negotiating strategy that President Trump implemented a week ago today – it has brought more than 75 countries forward to negotiate.”

The Trump administration spokeswoman Karoline Leavitt said it was all about “the art of the deal”. The spin for the President’s political base was clear: strength and wisdom had been demonstrated.

Most telling was the admission of the President himself just minutes after claiming it was planned. As an unrelated event on the South Lawn ended, President Trump went off script with the White House press pool. He admitted that the retreat was driven by “instinct” and his observation that investors were getting yippy, queasy, and “a little bit afraid.”

Motives matter to markets. Had the President really just purposefully played chicken with a financial catastrophe? Or was the President backing off in the face of crashing markets?

Markets came to believe that financial chaos forced the suspension. That the President pulled the emergency brake to avoid a meltdown. And that belief calmed them.

In financial circles, it was unkindly called “Trump Always Chickens Out” (TACO). That belief convinced investors that the markets had a floor under them and that floor was called TACO.

It was classic Trumpian spin. His political base and financial markets could, for opposite reasons, both consider the suspension as a win.

The President was forced to dial down tariffs to 10% for most nations. In the first week of April, grievance-fuelled tariffs collided with financial market reality, and reality won.

But this financial market TACO produced a pause, not a peace. The tariff war with China raged on. China’s Rose Garden tariffs were 34% on 2 April. By 9 April, the President had raised them to 125% in three rounds of furious retaliation and counter retaliation. China matched the 125%. Extreme tariffs became absurd tariffs. At that level, they weren’t barriers. They were embargoes.

Trade between the world’s two largest economies was now priced for economic war. Neither side could easily back down. The next phase of World War Trade was a full power test of which country could endure the most tariff pain. That is the subject of Chapter 6 of my eBook: The USA-China Battle.

My eBook World War Trade, begins with the destruction of the old trading order. It ends with the emergence of a new one. The progression falls neatly into three parts. 1) How the US and China got to the point were world trade war was politically popular in both countries. 2) How the tariff war was played out and US tariff aggression was contained by domestic forces. 3) How the global trading order is already being rebuilt.The full book is available free online here.

[i] The tariff stayed on only a few hours so is no statistic on the tariff revenue gathered in those hours so the Yale Budget Lab estimate is a trade-weighted average of the imposed tariffs. The 4% is for March 2025 from

https://budgetmodel.wharton.upenn.edu/p/2026-02-23-effective-tariff-rates-and-revenues-updated-february-23-2026/

[ii] Hartley, J., & Rebucci, A. (2025, April 15). Tariffs, the dollar, and equities: High-frequency evidence from the Liberation Day announcement. CEPR VoxEU.

[iii] Garimella, R., Kwan, S. H., & Mertens, T. M. (2025). Market reactions to tariff announcements. FRBSF Economic Letter, 2025-10. Federal Reserve Bank of San Francisco.