It was an historic rally yesterday on the strength of President Donald Trump’s backdown on his reciprocal tariffs, but the economists have done their numbers, and the new figuring says his tax slugs (or tariffs) are still going to be a problem. They’re just not as bad as they looked before his 90-day pause.

On Wednesday US-time, Wall Street cheered the Trump U-turn, with the Dow Jones Industrial Average surging by 2,962.86 points, or 7.9%, which was the biggest single-day point gain ever!

The S&P 500, the broader market index, spiked a huge 9.5% — the biggest one-day gain since the end of 2008 and the tech heavy Nasdaq boomed 12.2%. But that was then. Today the Dow was off 1014 points (2.5%), the S&P 500 was down 3.46% and the Nasdaq gave up 4.31%.

So, what gives, especially when the Yanks got a good CPI for March, which was down, yep, 0.1%, the first decrease in five years, taking the inflation rate to 2.4%. The lower reading was helped by lower energy costs, used cars and airfares, as well as slower price rises for apparel, but these will change once the President’s tariffs come to town!

That thought hasn’t eluded economists, who know a 10% tariff on just about all foreign imports is going to be inflationary, while the 125% hit on the USA’s third biggest trading partner, China, is bound to add to future price levels. And don’t forget that eventually Canada and Mexico will face a tariff that will be higher than 10%, given they have been ‘awarded’ a 25% tariff, which according to current news was 25%.

Meanwhile, the EU has a 20% tariff awaiting them if they can’t cut a deal with Trump. While the EU has put themselves on a 90-day pause for their retaliatory tariffs, ultimately, they will get slugged who knows by what percentage. Also, the sector tariffs remain, which all adds up to higher US inflation. Economists have focussed on the mugging for US and global economic growth from the tariff war ahead.

In a nutshell, while stock markets cheered at the Trump U-turn, the pesky economists, who are also tagged “the dismal scientists” have come up with conclusions that stock markets digested today, which explains why stocks are down today.

Let me sum up the latest take on these Trump tariffs:

1. The tariffs will raise the price of US made products because the economy needs products from overseas, which comes in cheaper from the countries that will be tariffed.
2. 30-40% of US manufacturing relies on imported products.
3. Goldman Sachs lowered recession risk from 65% to 45%; Metlife’s recession call dropped from 75% to 60%.
4. Investment bank, Morgan Stanley lowered immediate recession risk but says the tariffs prolong uncertainty. They didn’t say it, but they also infer the President’s capacity to punish trading partners and then change his mind isn’t ideal for investing other people’s money.
5. What happens after 90 days can’t be ignored by economists and the big investors who take their forecasts and then place their bets on stocks and bonds.
6. Remember, the bond market is boring compared to the sexy stock market but as abcnews.com reported on Wednesday: “Aselloffhit the United States Treasury bonds overnight, sent bond yields soaring and triggered concern about assets that typically serve as a safe-haven investment during moments of instability for stocks…”

The Trump tariffs have escalated uncertainty, and the 90-day pause showed the President will negotiate, but the big question will be where will we be in three months’ time?

And we still could see a world heavily slugged by tariffs but simply not as much as we thought and expected at the start of this week.

CNBC’s economics commentator, Steve Leisman, looked at the average tariff rates after the U-turn and this is what he found:

• Before the Trump tariffs, the US average tariff rate was 3%.
• After the Rose Garden tariff ‘party’, this average rate went to 30%.
• After the U-turn/pause, that rate is now 25.3%, the highest since 1904.
• With no trade with China and the new tariffs after the U-turn, the average slug would be 18.1%, the highest since 1934 and the Great Depression!

The numbers can lie, exaggerate or underestimate, but economists can’t convince themselves that these Trump tariffs won’t breed higher inflation, slower economic growth and even a recession, as well as a pile of uncertainty, which is toxic for stock markets.

This is why the US market adjusted its enthusiasm overnight and some of the huge surges yesterday for stock prices were driven by short sellers who got caught unaware that the President was about to change his mind!

Bottom line? The President can be influenced to change the magnitude of tariffs, and he might eventually strike a better deal for the US and reduce the negatives around inflation and unemployment. However, the uncertainty that prevails until then will stop stock market players from over-cheering and over-buying companies.