For most countries, the US will now apply a 10 per cent baseline tariff for the next three months.

So why did President Trump back away from the broader tariff push?

The answer is simple: the economic cost to the US was too high.

Modelling the fallout

2. ‘post-pause’ – after reciprocal tariffs were withdrawn.

Source: The Conversation

As is clear, the US would have faced steep and immediate losses in employment, investment, growth, and most importantly, real consumption, the best measure of household living standards.

Heavy costs of the tariff war

It is likely that internal economic advice reflected this kind of outlook. The decision to pause most of the tariff increases may well be an acknowledgement that the policy was economically unsustainable and would result in a permanent reduction in US global economic power. Financial markets were also rattled.

The scaled-back plan: still aggressive on China

Trump’s tariff pause has not changed duty rates for these countries.

What does this mean for Australia?

But our modelling suggests that Australia may actually benefit modestly. Under both scenarios, Australia’s real consumption rises slightly, driven by stronger investment, improved terms of trade (a measure of our export prices relative to import prices), and redirection of trade flows.

However, rising investor uncertainty is a risk for both the global and Australian economies, and this is not factored into our modelling. In the space of a single week, the Trump administration has whipsawed global investor confidence through three major tariff announcements.

A temporary reprieve

Robert Waschik is associate professor and deputy director at the Centre of Policy Studies, Victoria University.