The U.S. economy contracted by 0.3% in the first quarter of the year, highlighting its vulnerability amidst escalating tariffs.

President Donald Trump is exploring ways to dismantle his significant tariff announcements without appearing to concede or reverse his stance.

Currently, Trump is communicating subtle shifts, which investors appear to have grasped quickly, signaling that further tariff escalation is unlikely.

Trump acknowledged that the first trade agreements to reduce tariffs could arrive this week, stating, "It could happen," while addressing reporters on Monday.

Ongoing negotiations are reportedly taking place with the United States' three main Pacific partners: South Korea, Japan, and Taiwan.

Vice President JD Vance mentioned potential discussions with "friends in Europe", though it remains unclear if this refers to the European Union or specific nations like the United Kingdom.

India is also among the countries identified by Vance as potential partners.

Trump is positioning the narrative to indicate that all decisions are under his control, asserting, "I set the deal, they don’t set it." He addressed frequent inquiries regarding the timing of an agreement, stating, "It’s my decision, not theirs." Just two weeks earlier, he had deemed a trade truce unlikely; however, little has changed in international relations aside from the growing need to seek an escape from current tensions.

This pivot appears driven by the economic response to his trade policy.

The U.S. cannot sustain the tariff scenario that has emerged post-liberation day.

The markets delivered a clear message, with a significant drop in stock prices, rising distrust in the dollar, and increased yields on bonds.

Trump has articulated three primary objectives in his trade war: to pressure China, address the impact of U.S. companies relocating to Mexico and Canada, and to seek protection for certain declining industries such as automotive, steel, and aluminum.

In relation to China, tariffs have reached as high as 145%.

Trump has acknowledged the difficulties of conducting business between the two nations under such a high tariff regime, which is causing considerable harm to both economies.

While some inertia may be maintained in the short term, U.S. exporters are reportedly engaging in 'false flag' trade practices, while Chinese companies are experiencing a notable drop in orders.

Over the weekend, Trump expressed willingness to reduce tariffs on China, although Beijing demands that Trump take the first step, acknowledging a public rectification.

Trump has a history of framing his adjustments as victories, but his credibility appears to be waning, even among his voter base.

Rescindment of tariffs against China could significantly damage his reputation.

Recent steps taken by the Trump administration include an executive order from April 29, which eliminated the cumulation of tariffs on certain items and introduced a discount system for the automotive industry.

These changes also affect products subject to the initial executive orders like steel, aluminum, and other goods not covered by the United States-Mexico-Canada Agreement (USMCA), which currently enjoys tariff exemptions due to a previous modification in March.

The order specifies that "tariffs should not have a cumulative effect," as such accumulation leads to rates surpassing what is necessary to achieve the intended policy goals.

A procedure was established to determine which tariff would apply to items subject to multiple actions.

This acknowledges the policy implementation chaos and reduces the imposition of new tariffs that could exacerbate supply chain disruptions without domestic alternatives available.

Additionally, the proclamation aims to mitigate the impact of tariffs on the U.S. automotive industry by allowing companies with U.S. manufacturing facilities to receive discounts on foreign parts imports for two years, contingent on the volume and pricing of vehicles assembled and sold domestically.

This exception serves to postpone the activation of a 25% tariff on auto parts while maintaining the tariff on complete automobiles that took effect on April 3.

A "tariff compensation" scheme has been introduced, which reduces tariffs on auto parts that represent 15% of the value of a vehicle assembled in the U.S. for one year (until April 2026) and 10% for an additional year (until April 2027).

This aims to provide relief to producers who complete assembly in the U.S., even when utilizing foreign parts.

Research from BBVA Research indicates that although the individual 25% tariff imposed on Mexico remains unchanged, the elimination of tariff accumulation reduces the weighted average tariff from 18.2% to 13.9%.

This adjustment signifies a considerable shift from the president.

The recalibration is attributed to the 19.1% of exports facing a cumulative 50% tariff now paying a 25% tariff, with many products exempt under the USMCA.

Analysts suggest that a balance will emerge, where the level of protectionism towards Mexico will be lower than that directed at other countries due to the integration of supply chains contributing to U.S. competitiveness.

A selective trade war scenario is increasingly plausible, imposing tariffs only on specific countries.

Nevertheless, nations achieving tariff reductions will likely encounter new challenges as the U.S. generates substantial trade flows requiring reconfiguration.

Investors express beliefs that Taiwan may be the first country to secure a trade agreement with the U.S., as it is considered a strategic partner.

Speculation indicates that Taiwan may agree to appreciate its currency in exchange for this accord, resulting in a notable increase in its currency, prompting the central bank to advise caution to investors.

The rapidly changing environment suggests that even a trade agreement with the U.S. could lead to significant alterations in global supply chains.

Europe now faces a pivotal moment: if it successfully reduces tariffs and benefits from agreements with regard to China, it could improve the competitiveness of its manufacturing industry.

If the price of such an arrangement involves purchasing more U.S. gas, Germany may be inclined to accept.