In backing off on China tariffs Tuesday, President Donald Trump showed just how much pain the U.S. could tolerate — and China may use that to its advantage, key voices on Wall Street say.

Markets rallied on the announcement by the U.S. Trade Representative office that certain items were being removed from the new tariff list, while duties on others would be delayed until mid-December.

The short-seller Jim Chanos, who tweets under the alter ego "Diogenes," hinted that Chinese President Xi Jinping may take this as a sign that the U.S. may cave with enough pressure.

"So then tell me why Xi should not continue to wait out The World's Greatest Negotiator, who keeps 'dealing' with himself?" tweeted Chanos, founder and managing Partner of Kynikos Associates.

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Some investors took Tuesday's announcement as a sign that despite the White House's claim that China would bear the brunt of tariff impacts, the trade war was indeed hurting consumers. The products in the group exempt from tariffs include cellphones, some apparel, and video games — all of which are crucial to the U.S. consumer market, especially during the holiday shopping season. Trump announced on Aug. 1 that 10% tariffs would go into effect on Sept. 1 on the remaining $300 billion worth of Chinese imports that had not been slapped with U.S. duties.

Trump told reporters Tuesday afternoon that he postponed tariffs for the Christmas season "in case it had an impact on shopping" and the delay would "help a lot of people."

Hedge fund manager and Hayman Capital Management founder Kyle Bass said based on the tariff de-escalation, "it does look like President Trump has blinked." While Trump has been vocal in the tariff fight, Bass said "every time it makes the stock market go down a few hundred points" the president "backs away."