US President Donald Trump has paused the second phase of his "Liberation Day" tariffs just hours after they began — for all countries except China. Tariffs on all Chinese goods have been increased to about 125 per cent. Amid fears that the so-called reciprocal tariffs could cause a recession for the US, here's what it means for the global economy. What happened overnight? The global economy appeared to be in open rebellion against Mr Trump's tariffs as they took effect. Within hours, the US president posted on Truth Social that because more than 75 countries had reached out to the US government for trade talks without retaliation, there would be a pause on the new tariffs. Mr Trump later told reporters that he pulled back on many global tariffs — but not on China — because people were "yippy" and "afraid" due to the stock market declines. The announcement represents another dramatic turn in the trade war that had up-ended international relations and wiped trillions of dollars from stock markets. It came just two days after the White House dismissed reports the president was considering a 90-day pause, calling them "fake news". All trading partners except China will now be subject to the same "baseline" 10 per cent tariff rate, rather than the additional rates announced by the president at "Liberation Day" last week. China had earlier announced an 84 per cent tariff on US imports, a hike from its previous 34 per cent, to take effect from Thursday. US stocks surged on the news of the pause, recovering some of the past week's losses. Within minutes of Mr Trump's social media post, the S&P 500 shot up more than 7 per cent. It finished the day up 9.5 per cent — its biggest one-day gain since October 2008. Australian stocks have also surged out of the gates, the ASX 200 climbed more than 6 per cent in early trade. Does this change the US tariffs on Australia? There are no changes for Australia as it was already under the 'baseline' tariff of 10 per cent. But economists such as the University of New South Wales' Richard Holden have said the situation for Australia and its biggest trade partners, excluding China, was a lot better. "I still think the answer should be zero [tariffs], not 10 per cent, particularly for countries like Australia that have a free trade agreement with the United States. But I think this is a step in the right direction," Professor Holden said. Professor Holden said there was still significant uncertainty around what happens after the 90 days, but it was a long enough period to begin bilateral negotiations. In the short-term, however, it means some relief for most of Australia's trading partners. "[It's] an ill-advised policy from the White House and has caused a lot of economic dislocation worldwide," he said. "If this provides a window for those trade practices to be worked out, then that could be beneficial overall." Economist Angela Jackson from Impact Economics and Policy said that one of the outcomes the Trump administration was trying to achieve was a trade balance, which could be difficult. The last time the US had a trade balance was in the 1970s. "At the end of the day, if the United States wants to buy more things from overseas and consume more than it sells. It's very difficult for individual countries to control that," Dr Jackson said. "It's not really how international trade works. It is a multi-country global system, not one that works on a bilateral balance in every case." Why is the Trump administration applying tariffs? Some believe the tariffs are just the first step in a grand strategy to reshape global trade, boost US manufacturing, reduce the US budget deficit and make America's allies pay for the US security umbrella. It's being called the Mar-a-Lago Accord. It's never been confirmed by the Trump administration, and it's been widely regarded by economists as a terrible idea that won't work. However, Professor Holden believes the increase in tariffs has little to do with manufacturing jobs in America because that makes "no sense". "I think a better way to understand it … a 10 per cent national sales tax in place in the United States that will raise some amount of revenue. Estimates are as high as $600 billion a year. "So if this is a move to have lower income taxes but a high new sales tax to sort of make that revenue neutral, I think that's probably the best explanation for what this really is." Trade war between China and the US intensifies The World Trade Organization has said the trade war between the US and China could damage the global economic outlook, warning that it could fragment global trade along geopolitical lines. Earlier today, the Chinese ambassador, Xiao Qian, urged Australia to "join hands" with Beijing in "solidarity" after the US president threatened its rival with 125 per cent tariffs. However, the invitation was rejected by Deputy Prime Minister Richard Marles. The impact of an ongoing trade war between the US and China would hurt America more, according to Dr Jackson. "The reason for that is that they and their consumers rely heavily on goods from China. Now, either they will have to pay more for those goods, significantly more due to these tariffs, or they will have to go without," she said. She said that didn't mean China wouldn't feel the impact of the trade war, but they have more options on the table. "They are relatively well placed to look at diversifying their market, selling these goods into other markets," she said. "In terms of the economic impact for Australia, it does come through China, but I think China is relatively well-placed to weather this storm." Professor Holden believes a resolution to hostilities between China and the US will be difficult. "There needs to be a resolution between the US and China where both the US and China can save face," he said. "It's not immediately obvious to me, at least, what that resolution looks like."