Citigroup Interprets U.S. Tariff Policy, Three Market Scenarios Possible on April 2
This article is sourced from Zhao Ying, written by Wall Street Insights, and organized, translated, and authored by Techflow Deep Tide.
(Background: Bitcoin drops below 82,000, Trump tariffs, non-farm employment, and Powell’s remarks are all set to strike this week, posing potential market volatility.)
(Contextual Supplement: How will Trump’s “April 2 Liberation Day” tariff bomb affect the cryptocurrency market?)
As the U.S. tariff policy is set to be revealed on April 2, market uncertainty is reaching new heights, and investors need to buckle up for the turbulence ahead! According to the latest reports, U.S. President Trump has expressed a certain openness to reaching tariff agreements with other countries, but he hinted that any agreements would be reached after the tariffs take effect on April 2.
After the S&P 500 faced its worst first quarter since 2020, analysts have warned that the likelihood of further declines outweighs that of increases. Additionally, some analysts have pointed out that future tariffs and retaliatory actions are crucial, noting that the market’s reaction on “April 2” will largely depend on the timing of the tariffs, particularly industry-specific tariffs and the speed of other countries’ responses to reciprocal tariffs.
Three Tariff Scenarios
The Citigroup report highlights three main scenarios based on survey results and analyzes their potential impacts on the market as the April 2 tariff measures are imminent:
Scenario 1: Announcement of Reciprocal Tariffs Only: If the Trump administration merely announces reciprocal tariffs based on the most favored nation (MFN) simple average tariff gap on April 2, it will be a relatively mild outcome. According to a Nomura survey, about 25.5% of respondents believe this scenario is likely, with countries like India, Thailand, and Indonesia potentially being the most affected. In this case, the market reaction may be limited, and the U.S. dollar index may not experience significant fluctuations.
Scenario 2: Reciprocal Tariffs Plus Value-Added Tax (VAT): If the tariff policy includes VAT, it would be a more aggressive move, potentially triggering risk aversion and a stronger U.S. dollar. In this scenario, Germany’s MFN tariff gap (including a 19% VAT) is 20.4%, France is at 21.1%, and Spain is at 21.8%. Asian countries also face risks, with Japan at 10.5%, India at 29.5%, and Thailand at 13.0%. This scenario could lead to a 50-100 basis point immediate increase in the U.S. dollar index (DXY) following the announcement, while the U.S. dollar against the Japanese yen may weaken, and global stock markets could decline. Asian interest rates could fall, with India and Thailand potentially decreasing by 5-7 basis points.
Scenario 3: More Aggressive Tariff Policy: In addition to reciprocal tariffs and VAT, industry-specific tariffs may also be included. For instance, Trump previously announced a 25% tariff on imported automobiles (potentially affecting Mexico, South Korea, Japan, Canada, and Germany) and hinted at possible tariffs on semiconductor chips and pharmaceuticals (with South Korea and Singapore being the most affected). Furthermore, there may be no extension of the 25% tariff deadline for Mexico and Canada or additional tariffs on countries importing Venezuelan oil. In this scenario, the market reaction may be the most severe, with the U.S. dollar index potentially strengthening further, while the dollar against the yen may decline significantly.
The Market Prepares for Turbulence!
The “roller coaster” journey of U.S. stocks has only just begun, as the S&P 500 index heads towards its worst first-quarter performance since 2020, and the impending tariff policy may further exacerbate market turbulence.
The April 2 tariff announcement will reveal which countries and industries the Trump administration is targeting, with the market expected to experience significant volatility driven by the severity, duration, target countries and industries of the tariffs, as well as retaliatory measures from trade partners.
Mark Malek, Chief Investment Officer at Siebert Financial, stated:
“I am a steadfast bull, but I want to tell you that from now until next week, especially before the earnings season begins, the potential for U.S. stocks to decline outweighs that of increases.”
Michael Arone, Chief Investment Strategist at State Street Global Advisors, commented:
“Uncertainty continues to plague the market, bringing volatility. More volatility may arise on April 2 and after the deadline.”
Angelo Kourkafas, Senior Investment Strategist at Edward Jones, noted:
“The announcement on April 2 may not be a ‘one-off event’; it is an important milestone, but ultimately it does not eliminate all uncertainty.”
Matthew Aks, Senior Strategist at Evercore ISI, reminded:
“The market reaction on April 2 will largely depend on the timing of future tariffs, particularly industry-specific tariffs, and the speed of other countries’ responses to reciprocal tariffs. If other countries take retaliatory actions, this could lead to an escalation cycle, potentially undermining any sense of relief.”
According to CCTV News, when asked during an interview on “Air Force One” en route to Florida whether he was willing to discuss reaching an agreement to lower tariffs on the U.S. with countries like the UK, Trump replied, “If we can get something out of this deal, it’s possible – but, you know, we’ve been taken advantage of for 40 years, or even longer. That won’t happen again. But yes, I’m certainly willing.”
