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The official explanation for Trump’s abrupt 90-day pause in his tariff war—except on China—is hilarious and in character. He actually planned this all along, to get other countries to the negotiating table. That’s quite a comedown from Liberation Day as a formula for American self-sufficiency.

Equally preposterous is his contention that he is giving other countries a break because they refrained from retaliating. But wasn’t the whole point to levy "reciprocal" tariffs to compensate for the fact that other nations were supposedly screwing the U.S. economy, even without further retaliation?

It’s not over because even a 10 percent baseline tariff is still a tax on imports that will increase inflation. And it’s far from clear which nations will be willing to negotiate what sort of deals over the next 90 days.

It’s not over because we don’t know how Trump will react. His impulsivity remains, so corporate planners have no idea what he will do next and are reluctant to expand domestic production capacity.

And it’s not over because it’s a fantasy that Trump can somehow ring-fence China as a uniquely bad actor and levy tariffs that escalate by the day, and somehow insulate the U.S. economy from the consequences. The United States imported $438 billion worth of goods from China in 2024. Those included cellphones and other consumer electronics, as well as all manner of consumer goods, auto parts, and other manufacturing inputs.

China also supplies the U.S. with rare minerals. In the case of an extreme trade war, China could start dumping its massive holdings of U.S. Treasury debt or mortgage-backed securities.

It does make sense to find other sources of supply, but this will not happen overnight. In the meantime, tariffs totalling 125 percent amount to a virtual embargo of China, and will crimp supply chains and raise producer and consumer prices. China’s retaliatory tariff, currently at 84 percent, will hurt U.S. exporters, notably farmers.

China’s President Xi Jinping shows no sign of blinking, and one consequence is that China will divert export to other countries. Thanks to Trump, China may end up a lot closer to Europe.

And the markets seem to agree that it isn’t over. At this writing, the Dow is down 2.5 percent.

IN THE END, TRUMP DECIDED TO BLINK, not because Republican legislators discovered their spines but because financial markets freaked out. And the way that they freaked out is instructive. As stock prices fell, the most important financial market of all, the $28 trillion market for U.S. Treasury securities, began tottering.

And Treasurys began tottering apparently because of a favorite speculative play of hedge funds known as basis trades. The idea is to borrow a vast sum—leverage can be as high as 100-to-1—and then place a huge bet taking advantage of the convergence or divergence between the price of Treasurys and Treasury futures.

But as the stock market collapse spilled over into bond markets and Treasurys began behaving in weird ways, hedge funds began unwinding trades and dumping Treasurys, and other investors followed. As Wall Street moguls warned—and seconded by Treasury Secretary Scott Bessent—that risked not just a stock market crash but a total financial collapse.

So Trump blinked. A couple of important takeaways, neither reassuring:

This affair has perhaps weakened Trump’s ability to wage economic warfare (though for now, he is convinced that he has pulled off a terrific deal). But it’s far from clear whether it has weakened his coalescing dictatorship in any other respects.

DOGE is still wreaking havoc with vital public services; federally sponsored research and public health are still being destroyed, Social Security undermined, civil liberties trampled, and universities intimidated. And Republicans have yet to grow anything resembling a spine.

And while the financial system dodged the most lethal bullet for now, the fact that the market for Treasurys nearly collapsed was one more bitter fruit of extreme financial deregulation in which both parties colluded.

The New Deal regulatory system drastically curtailed playing the stock market on margin, which was one of the causes of the 1920s stock market bubble and crash. But thanks to the profusion of derivatives, there are new forms of margin of which the stock speculators in the 1920s never dreamed.

Basis trades use margin of up to 100-to-1. The recent market collapse deepened when they and other speculators began getting margin calls.

It’s an emblematic pairing—extreme deregulation and incipient dictatorship, creating the conditions for economic collapse. And despite one day of partial relief, those conditions persist.