President Donald Trump on Tuesday signaled a potential retreat from his administration’s aggressive trade stance against China, saying the steep 145% tariff rate currently imposed on Chinese imports “won’t be that high” for long.

His remarks, made in the Oval Office, added to mounting speculation that the U.S. is preparing to soften its position amid growing economic fallout and pressure from businesses hit by the escalating trade war.

Trump’s declaration came just hours after Treasury Secretary Scott Bessent privately admitted that the current U.S.-China trade impasse is “not sustainable.” Though Trump struck a hopeful tone about eventual negotiations, insisting “we’re going to be very nice,” there was no indication that formal talks have resumed. The White House later confirmed that there have been no direct communications between Trump and Chinese President Xi Jinping.

Still, Trump said the current tariff rate “will come down substantially,” but not to zero — a level he claimed previously “destroyed” the U.S. economy.

The shift in tone did not go unnoticed by market watchers and analysts, who described it as a retreat under mounting pressure.

“Trump has just folded on Powell and China! Not going to fire Powell and China tariffs to come down substantially… This man is running a circus. This daily flip-flop is disgraceful and a joke,” said Puru Saxena, founder of Hong Kong-based investment research firm AlphaTarget, in a post on social media.

Trump’s softening posture has been interpreted as a signal of vulnerability, with several analysts arguing that China now holds the upper hand in any future negotiations. According to the South China Morning Post, advisers close to Chinese policymakers see the White House’s recent statements as a sign that the U.S. side is “folding.” That perception, experts suggest, could embolden Beijing to hold out for more favorable terms — or make fewer concessions altogether.

“[Trump] needs a quick deal,” Garcia-Herrero told the South China Morning Post. “China does not need to offer anything big in such circumstances, because the US is so desperate for a deal. With a few billion in imports from the US, China might manage to lower the tariffs. The deal might be sweeter for China than in 2019.”

One source familiar with Trump’s strategy said the White House is even willing to phase in tariffs over five years — a dramatic shift from the abrupt enforcement deadlines that defined earlier rounds of tariffs. Another possible concession, the source said, includes coordinating future tariffs with negotiations, rather than slapping them on unilaterally.

But while Trump confirmed he’s open to dialing back tariffs, he remained adamant that duties on Chinese goods would not be entirely lifted. “It won’t be zero,” he said.

Analysts say the policy shift is being driven not by diplomacy but by economic headwinds. Since Trump announced the universal tariffs earlier this month, industry data shows that ocean container bookings from China to the U.S. have plummeted more than 60% industry-wide — a direct hit to U.S. supply chains. The downturn is affecting everything from electronics and household goods to raw materials critical to American manufacturers.

“There’s a real squeeze happening here,” said Chen Zhiwu, a finance professor at the University of Hong Kong. “The more he talks like this, the more it shows how anxious the U.S. side is.”

According to Chen, China sees little incentive to rush back to the table and might benefit from prolonging the standoff, especially as the yuan gains popularity in regional trade.

Trump’s calls for cooperation come as China continues to demand that the U.S. drop what it calls “threats and coercion.” Beijing has also stepped up its own diplomacy, reportedly engaging U.S. allies like Japan to build opposition against Trump’s tariff plan, a move seen as undermining Washington’s leverage.

Despite the political theater, Trump remains without a clear path to securing a deal. Talks have not resumed, and China has yet to formally respond to U.S. overtures. Instead, Beijing has stuck to its retaliatory tariffs, now totaling 125% on U.S. exports, while exempting select industries such as semiconductors and medical devices in a bid to contain the domestic impact.

Even U.S. officials appear to be hedging expectations. Bessent, speaking Tuesday to investors, warned that the negotiations with China would likely be a “slog,” and that while a de-escalation is expected, the process will be neither fast nor simple.

In Beijing, Foreign Ministry spokesperson Guo Jiakun reiterated China’s stance that the U.S. must “stop making threats and resorting to coercion” if it wants a path to dialogue. Until then, analysts believe China is content to wait out the storm.

“Rising living costs, economic disarray, and popular discontent will eventually force a definite pivot of Trump’s approach,” said Xu Tianchen, a senior China economist. “China is betting that time is on its side.”

With the U.S. economy showing signs of strain and businesses warning of disruptions, Trump’s shift from hardline rhetoric to cautious optimism may not be the final act, but it’s certainly a curtain-raiser for a more complicated phase of the trade war.

The International Monetary Fund has warned that President Donald Trump’s escalating trade war, anchored by waves of tariff impositions, could unravel the fragile financial stability that has cushioned the global banking system since the 2008 financial crisis.

In a report released Tuesday during its Spring Meetings with the World Bank in Washington, the IMF underscored that the tit-for-tat tariff exchanges, particularly between the United States and China, have jolted markets across continents, sparking sharp repricing of assets and a spike in volatility across equities, currencies, and bonds.

While the latest round of tariffs was announced earlier this month, its shockwaves are still being measured in the global financial system.

“Global financial stability risks have increased significantly,” the IMF said. The agency warned that some financial institutions, particularly those operating with high leverage, could face strain in the event of further selloffs triggered by deepening geopolitical tensions.

Although the immediate market reaction to the April 2 tariff announcements was “abrupt,” IMF Monetary and Capital Markets Department head Tobias Adrian stressed that it was not yet disorderly. But the risks are becoming too large to ignore.

“If things go very badly,” Adrian said, “we may end up in a concerning place from a financial stability point of view.”

Global Fallout from U.S. Tariffs

The broader consequences of Trump’s aggressive trade stance are already being felt across major economies. Tariffs on steel, aluminum, semiconductors, and other critical sectors have not only hurt Chinese exporters but also disrupted supply chains spanning Europe, Latin America, and Southeast Asia. Many developing nations, whose economies rely heavily on manufacturing inputs or exports to U.S.-linked markets, have reported declines in growth forecasts and foreign investment inflows.

The European Union has threatened retaliatory tariffs, while countries like Germany—Europe’s industrial powerhouse—have seen factory orders weaken under pressure from uncertainty and reduced demand. In Asia, South Korea, Japan, and Taiwan are facing renewed risks in their high-tech and auto sectors, sectors deeply entangled with both American and Chinese trade flows.

Even in the U.S., the tariffs have introduced inflationary pressure by raising costs for imported goods. American manufacturers and farmers, once at the core of Trump’s support base, have been among the hardest hit. The American Farm Bureau reports that retaliatory tariffs by China and others have led to a significant drop in agricultural exports. Meanwhile, businesses report that supply chain disruptions are increasing operational costs, which are being passed on to consumers.

Strain on Financial Institutions

The IMF’s report highlighted that the financial system, though more resilient today than in 2008, is not immune to these shocks. As valuations begin to adjust, particularly in heavily exposed markets, institutions that rely on leverage to boost returns are at risk.

“A normalization of asset prices could trigger significant losses for some institutions, especially those with aggressive investment strategies,” the report noted.

Of particular concern is the “basis trade”—a popular but risky arbitrage strategy used by hedge funds to profit off mispricings in U.S. government bonds. The IMF has long flagged this trade as a potential source of systemic instability. Adrian noted that there has been some unwinding of these positions, but so far, “it’s pretty contained.”

Still, the message is clear: if political brinkmanship continues unchecked, markets could rapidly shift from volatile to unstable.

Central Banks on Alert

The IMF urged central banks and financial regulators to be proactive. “Authorities should prepare to deal with financial instability by ensuring that financial institutions are ready to access central bank liquidity facilities and by being prepared to intervene to address severe liquidity or market function stress,” the report advised.

Banks are better capitalized today, thanks to post-crisis reforms like Basel III. But the IMF warned against complacency.

“We must ensure the timely and full implementation of all agreed financial reforms,” the report said, adding that capital buffers alone might not be enough in the face of rising interconnectedness between banks and nonbanks, including insurers, hedge funds, and private credit lenders.

The IMF is also watching for any signs of disorderly liquidations across these interconnected institutions—any of which could ignite a cascade across the global financial network.

Trade War in a Geopolitical Pressure Cooker

Beyond tariffs, the IMF warned of the risks posed by overlapping geopolitical tensions. The prolonged Russian invasion of Ukraine has continued to distort energy markets, while the conflict in Gaza adds another layer of geopolitical uncertainty. Each flare-up compounds market nervousness and increases the likelihood of a major market correction.

The Bank of England added its voice to the chorus earlier this month, cautioning that the trade war and geopolitical instability “could harm financial stability by depressing growth.”

For now, financial markets have avoided full-blown panic. There have been no institutional failures, and global recession fears have not materialized. But that balance is increasingly fragile. Investors and policymakers are watching Trump’s next moves. One misstep in trade negotiations or further escalation of tariffs could send the world’s financial system into unfamiliar territory.

Tobias Adrian remains hopeful that tensions may ease, offering a path back to stability. “There’s also a possibility that there’s some resolution of those tensions,” he said.

However, the IMF is advising economies not to take chances. Its advice: stay vigilant, be prepared, and don’t assume the system is shockproof. This is because as the Trump administration barrels forward with its combative trade agenda, the global economy could soon be tested in ways it hasn’t been since the collapse of Lehman Brothers.