Author: Zhao Ying, Wall Street Insights
As the US tariff policy is about to be revealed on April 2, market uncertainty will reach a new peak, and investors need to fasten their seatbelts to prepare for volatility!
According to CCTV News on Saturday, as of local time on March 28, US President Trump plans to announce new tariffs in the coming days, stating that he is somewhat open to reaching tariff agreements with other countries, but hinting that any agreement will be reached after the tariff measures take effect on April 2.
When asked if this would happen before the tariff announcement on April 2, he said: "No, likely later." Trump also reiterated his plan to announce drug tariffs but refused to disclose the specific tax rates.
In its latest report, Citibank summarized three main scenarios and their market impacts: first, announcing only reciprocal tariffs, which would have a relatively limited market reaction; second, reciprocal tariffs plus VAT, which could cause the dollar index to immediately rise 50-100 basis points and global stocks to potentially fall; third, including industry-specific tariffs in addition to reciprocal tariffs and VAT, which could trigger a more intense market reaction.
After the S&P 500 experienced its worst first quarter since 2020, analysts have been warning that the potential for further decline is greater than an increase. Some analyses indicate that future tariffs and retaliatory actions are key, and the market reaction on "April 2" will largely depend on the timing of tariffs, especially industry tariffs and the speed of other countries' responses to reciprocal tariffs.
Three Major Tariff Scenarios
The Citibank report points out that with the tariff measures announcement imminent on April 2, based on survey results, it has summarized three main scenarios and analyzed their market impacts:
Scenario One, Announcing Only Reciprocal Tariffs: If the Trump administration only announces reciprocal tariffs based on the Most Favored Nation (MFN) simple average tariff gap on April 2, this would be a relatively mild outcome. According to Nomura Securities' survey, about 25.5% of respondents believe this scenario is likely, with countries like India, Thailand, and Indonesia potentially being most affected. In this case, market reaction would likely be limited, and the dollar index might not experience significant fluctuations.
Scenario Two, Reciprocal Tariffs Plus VAT: If the tariff policy includes VAT, this would be a more aggressive move that could trigger risk aversion and dollar strength. In this scenario, Germany's MFN tariff gap (including 19% VAT) is 20.4%, France is 21.1%, and Spain is 21.8%. The Asian region also faces risks, with Japan at 10.5%, India at 29.5%, and Thailand at 13.0%. This scenario could cause the dollar index (DXY) to immediately rise 50-100 basis points, but the dollar might weaken against the yen, and global stocks could fall. Asian interest rates might drop, with India and Thailand potentially declining 5-7 basis points.
Scenario Three, More Aggressive Tariff Policy: In addition to reciprocal tariffs and VAT, industry-specific tariffs might also be included. For example, Trump previously announced a 25% tariff on imported finished cars (potentially impacting Mexico, South Korea, Japan, Canada, Germany) and hinted at possible tariffs on semiconductor chips and drugs (with South Korea and Singapore most affected). Additionally, the 25% tariff period for Mexico and Canada might not be extended, or tariffs might be imposed on countries importing Venezuelan oil. In this scenario, market reaction could be most intense, with the dollar index potentially strengthening further and the dollar potentially falling significantly against the yen.
Market Prepares for Volatility!
The US stock market's "roller coaster" journey is just beginning, with the S&P 500 heading towards its worst first quarter since 2020, and the upcoming tariff policy could further exacerbate market volatility.
The April 2 tariff policy announcement will reveal which countries and industries the Trump administration will target. The market expects significant fluctuations, with US stocks likely to be severely impacted by factors such as the severity of tariffs, their duration, target countries and industries, and potential retaliatory measures from trading partners.
Mark Malek, Chief Investment Officer at Siebert Financial, stated:
I am a firm bull, but I want to tell you that from now until next week, especially before the earnings season begins, the potential for US stocks to decline is greater than the potential for them to rise.
Michael Arone, Chief Investment Strategist at State Street Global Advisors, said:
Uncertainty continues to plague the market, bringing volatility, and there may be more volatility on and after April 2.
Angelo Kourkafas, Senior Investment Strategist at Edward Jones, stated:
The April 2 announcement may not be a "one-time event". It is an important milestone, but ultimately it does not completely eliminate all uncertainties.
Matthew Aks, Senior Strategist at Evercore ISI, warned:
The market reaction on April 2 will "largely depend on" the timing of future tariffs, especially industry tariffs, and the speed of other countries' responses to reciprocal tariffs. If other countries take retaliatory actions, this will bring the risk of an escalation cycle that could undermine any sense of relief.
According to CCTV News, when asked on Air Force One en route to Florida whether he was willing to discuss reaching tariff reduction agreements with countries like the UK, Trump said, "If we can get something out of this deal, it's possible—but you know, we've been taken advantage of for 40 years, even longer. This is not going to happen anymore. But yes, of course, I'm willing to accept."
