The Trump administration is changing direction on the economy amid fears that escalating tensions over tariff policy could be unsustainable for the United States.
At the start of the week, stocks slid and the dollar hit its lowest value against foreign currencies in years amid the growing fallout between President Donald Trump and Federal Reserve Chairman Jerome Powell, one of the most influential economists in the country. At the same time, Trump’s trade war with China escalated again on Monday after Beijing threatened to take “countermeasures” against countries that negotiate trade deals with the U.S. “at the expense of China’s interests.” And on Tuesday, the International Monetary Fund projected global growth to be 2.8% in 2025, down from its previous forecast of 3.3%, due to increased “risks to the global economy…and worsening trade tensions.”
Now, the Trump administration is signaling a tone shift on both China and Powell, hopefully easing some of the economic tensions investors and consumers are feeling.
In a private speech in Washington, D.C., for JP Morgan Chase, Treasury Secretary Scott Bessent said that while talks with China to negotiate a trade deal have yet to formally start, “neither side thinks the status quo is sustainable.”
Bessent added Tuesday that he also expects “de-escalation” in the trade war, according to a transcript obtained by the Associated Press.
Hours later, Trump reiterated the softened positioning on China, telling reporters at the White House, “We’re going to be very nice” to China. The current “very high” 145% tariff the U.S. has placed on China will come down “substantially,” the president pledged as he expressed hope the two countries could “make a deal.”
“I think we’re going to live together very happily and ideally work together, so I think it’s going to work out very well,” Trump told reporters at the White House.
In an apparent response to the president’s remarks, China foreign ministry spokesperson Guo Jiakun said during a press briefing Wednesday that Beijing’s “doors are wide open” for trade talks.
Trump revealed last week that China has been in regular contact with the White House to hash out an end to the burgeoning tariff dispute, telling reporters he expected a deal within weeks.
The president has also dialed back attacks on Powell after their disagreements about tariff policy and when to implement lower interest rates reached a fever pitch last week. Earlier this month, Powell suggested in a speech before the Economic Club of Chicago that the president’s tariff agenda will lead the Fed to hold off on any significant change to interest rates.
Trump then attacked Powell for not lowering interest rates, saying, “Powell’s termination cannot come fast enough!” The statement made the markets nervous, with the Dow dropping over 1,000 points after, and the S&P 500 down almost 3% by noon.
Kevin Hassett, the president’s top economic adviser, told reporters Friday that the White House was exploring whether it could legally fire Powell, but on Tuesday evening, Trump clarified that he had “no intention of firing” Powell over the disagreement.
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“None whatsoever. Never did. The press runs away with things,” the president continued. “No, I have no intention of firing him. I would like to see him be a little more active in terms of his idea to lower interest rates. It’s the perfect time to lower interest rates.”
Afterwards, the markets rebounded. The Dow jumped over 800 points at opening on Wednesday. The S&P 500 was up over 2.6% and the Nasdaq was up 3%.
