Via Truth Social, Trump announced a 90-day pause to the reciprocal tariffs on most countries, except for China. The stock market immediately ripped. The Dow Jones shot up 2,962 points, the S&P 500 gained 9.5%, and the Nasdaq Composite had its second best day on record. Billions of dollars in wealth were restored. 

Investors saw Wednesday’s announcement as a lifeline, while the White House framed it as the next step in a complex plan to counter China’s malign influence on global trade. 

But the idea of a master plan has been severely undercut by a short-lived recovery that has since reversed, a bond market that signaled an unparalleled level of doubt in the U.S. economy, and flip-flopping public statements from Trump. Not only have markets not recovered to their pre-tariff levels, after a historic sell-off last week, they fell again on Thursday. The S&P 500 fell 3% and the Dow dropped 2%. 

During the weeklong tariff regime, Trump told other countries not to retaliate. Most listened, except for China, which some saw as predictable. 

Trump “anticipated the retaliation from China,” Macquarie global rates strategist Thierry Wizman told Fortune. “In fact, that’s a feature of the plan, not a bug. The whole idea was to get China to retaliate. You can double the tariff on China so you can, in turn, justify reducing the tariffs on everyone else to make it look like you are giving everyone else preferential treatment, but penalizing China.” 

Treasury Secretary Scott Bessent made a similar argument about Trump’s strategy to reporters on Wednesday. “You might even say he goaded China into a bad position,” Bessent said with a smile. 

While the past week did result in China facing singularly high tariffs of 125%, later bumped up to 145%, the rest of the world was issued a writ of stay. Although, it came at the expense of enormous financial upheaval. Any calming influence Trump’s Wednesday pause may have had, seemed to have dissipated by Thursday as the White House still had to negotiate more than 70 trade deals and had embarked on nothing short of a trade war with China.  

“The market is trying to put the worst-case scenario behind us, but the problem is the uncertainty will still pervade,” said George Catrambone, head of fixed income Americas at DWS. “Markets do not like uncertainty. We got very little certainty yesterday, except that there’s a pause and China seems to be the main combatant in this trade war.” 

Geopolitical Gambit or Presidential Instinct?

In fact, the entire tariff ordeal was construed as a geopolitical gambit to get China to overplay its hand in retaliation to the U.S.’s incipient tariffs, according to investors Fortune spoke with. By being the only country to retaliate, China would reveal itself to be the bad actor the U.S. had suspected all along.

That theory would indicate there is a Grand Plan to isolate China, which ended up being the only country not spared in Wednesday’s reprieve. At the same time, the U.S.’s clemency toward the rest of the world is supposed to draw other countries closer to Washington’s orbit with the hopes of continued deescalation.  

Trump himself has undermined the argument of a grand plan. On Wednesday, when asked how he would determine next steps for his trade policy moving forward Trump replied: “instinctively.” 

The White House did not respond to a request for comment.

As the U.S. faces the whirlwind task of negotiating trade deals with north of 70 countries, it could strengthen its hand with more favorable trade agreements than were previously in place. 

“It could be that these agreements come to fruition, they’re of greater economic benefit to the U.S.,” Catrambone said. “We avoid recession, and we rebuild our credibility. That’s certainly a potential outcome here. We shouldn’t pretend like it isn’t.”

Part of the grand plan rests on the White House pressuring the U.S.’s trade partners not just to strike better deals with it, but worse ones with China, according to Wizman. The U.S. would work with Europe to reduce its value-added tax, a long-term pet peeve of Trump’s, or getting Japan and South Korea to eliminate any existing tariffs on American goods, while at the same time convincing them to raise trade barriers against China. 

“It could also be about getting those other countries to raise their own tariffs against China and become a more self-sufficient block of countries that isn’t reliant on China,” Wizman said. 

Trump, though, seemed to dispel that notion when taking questions in the Oval Office on Wednesday. When asked if the plan was to build a coalition of allies to apply collective pressure on China, Trump answered: “No.” 

The initial ebullience over the fact the U.S. would not, in fact, fight a trade war against the whole world at once, wore off a day later when investors realized it would still be fighting one with China. The U.S. hit China with 145% tariffs, as Beijing struck back with 84% levies of its own. That reality still means high tariffs on the world’s top manufacturer, which exports about $440 billion worth of goods to the U.S. 

Markets won’t recover completely from the U.S. and China’s frozen trade, according to Wizman. 

“If you have a cold war with China, that still implies an important deglobalization trend,” he said. “It’s not free trade. And to the extent that people associate globalization with better global growth over the last 25 years, I think they’ll still have to attenuate their outlook for growth.”

Even tariffs on China alone would still squeeze margins for businesses that source goods from there, risk higher prices for consumers, and effectively curtain one of the global economy’s major trade relations. 

“I don’t know how there won’t be a strong reaction in America when everything starts to cost more which might again harm consumer confidence and the markets,” said George Kailas, CEO of retail trading platform Prospero.ai. 

The administration might have been willing to weather the storm in the stock market. When global equities plummeted, the president dubbed the cratering prices “medicine” and “short-term pain.” Bessent said the market was experiencing a “short-term market reaction” and Commerce Secretary Howard Lutnick told investors U.S. markets would perform “extremely, extremely well” in the long-run.  

What the White House was not willing to countenance was a bond market collapse. Before Trump stepped in, the U.S. economy was hit with a rare one-two punch of tanking stock and treasury prices, which risked a calamitous financial crisis. Once the yields on the 10-and 30-year Treasuries started to soar—in the span of hours no less—the purported short-term pain started to look much longer and more painful. 

“The bond market was the most prominent place we could see what was the equivalent of the Tesla boycott against our country as a whole,” Kailas said. “We found out that we could not win a trade war against the world.”

Yields soared at the same equities cratered, which signaled an unprecedented lack of faith in the U.S. economy. When these two financial events line up they can presage the worst sort of crisis. Similar dynamics showed up in Greece’s 2010 sovereign debt crisis and in the U.S. in 1987 on Black Monday. 

Believers of the grand plan will say this was the moment to pull back, reverse course, and stem the bleeding just before the wound got infected. 

“I think someone did walk into the Oval Office and say, ‘Look if you’re gonna start to use the carrot as well as the stick, this might as well be the time to take out the carrot,’” Wizman said. 

Doubters will, of course, say inducing an unheard of level of doubt in the U.S. economy was not part of the plan. And, if it was, wouldn’t such a thing be indicative of reckless abandon rather than a master strategy. 

“Trump would have been spooked that the stock market slump was resulting not in lower bond yields but in higher yields,” said Dhaval Joshi chief strategist at BCA Research. 

Eventually, the market called out and Trump answered. “Trump’s administration isn’t as impervious to market pain as it may have appeared for a while,” UBS Investment bank chief strategist Bhanu Baweja wrote to investors on Thursday. “Its pain threshold has just come into view.”

Trump did end up saying it was the bond market that led to his decision to announce the pause. “I saw last night people were getting a little queasy,” Trump said. 

He added that he was surprised by the market’s reaction to his decision to stay the tariffs. “I didn’t know it would have that kind of an impact,” Trump said of the market upswing.  “If you keep going you’ll be back to where it was four weeks ago.”  

Then he caught himself: “But it was a sick market four weeks ago.”

Four weeks ago the S&P 500 and the Dow were 7% higher and 6.5% percent higher than today.