Citigroup Interprets U.S. New Tariff Policy: Three Market Scenarios May Emerge on April 2
This article is authored by Zhao Ying from Wall Street Insight, organized, translated, and written by Techflow Deep Tide.
(Background Summary: Bitcoin Drops Below 82,000; Trump’s Tariffs, Non-Farm Employment, and Powell’s Remarks Expected to Cause Market Volatility This Week)
(Background Supplement: Simulation: How Will Trump’s “April 2 Liberation Day” Tariff Bomb Affect the Cryptocurrency Market?)
As the announcement of the U.S. tariff policy on April 2 approaches, market uncertainty is set to reach new heights, and investors need to fasten their seatbelts in preparation for turbulence! 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 made after the tariff measures take effect on April 2.
Following the S&P 500’s worst quarterly start since 2020, analysts have warned that the potential for further declines outweighs that for increases. Some analysts pointed out that future tariffs and retaliatory actions are key, stating, “April 2” market reactions will largely depend on the timing of tariffs, especially industry tariffs and the speed of responses from other countries to reciprocal tariffs.
Three Tariff Scenarios
Citigroup’s report pointed out that with the impending announcement of tariff measures on April 2, three major scenarios have been summarized based on survey results, analyzing their impact on the market:
Scenario One: Announcement of Reciprocal Tariffs Only: If the Trump administration only announces reciprocal tariffs based on the simple average tariff gap of Most-Favored-Nation (MFN) on April 2, this would be a relatively mild outcome. According to a Nomura Securities survey, about 25.5% of respondents believe this situation could occur, with countries such as India, Thailand, and Indonesia potentially being the most affected. In this case, the market response may be limited, and the U.S. dollar index may not experience significant fluctuations.
Scenario Two: Reciprocal Tariffs Plus Value-Added Tax (VAT): If the tariff policy includes VAT, this would constitute a more aggressive move, potentially triggering a flight to safety and strengthening the dollar. In this scenario, Germany’s MFN tariff gap (including a 19% VAT) is 20.4%, France at 21.1%, and Spain at 21.8%. The Asia region also faces risks, with Japan at 10.5%, India at 29.5%, and Thailand at 13.0%. This scenario could lead to the U.S. dollar index (DXY) rising immediately by 50-100 basis points after the announcement, while the dollar against the yen may weaken, and global stock markets could decline. Asian interest rates may drop, with India and Thailand potentially falling by 5-7 basis points.
Scenario Three: More Aggressive Tariff Policy: In addition to reciprocal tariffs and VAT, this could also include industry-specific tariffs. For example, Trump previously announced a 25% tariff on imported cars (potentially affecting Mexico, South Korea, Japan, Canada, and Germany) and hinted at tariffs on semiconductor chips and pharmaceuticals (with South Korea and Singapore being the most affected). Additionally, there may be no extension of the 25% tariff on Mexico and Canada or tariffs imposed on countries importing Venezuelan oil. In this scenario, market reactions could be the most severe, with the dollar index potentially strengthening further, while the dollar against the yen could drop significantly.
The Market Prepares for Turbulence!
The “roller coaster” journey of U.S. stocks has just begun, with the S&P 500 index heading towards its worst first-quarter performance since 2020, and the upcoming tariff policy announcement may further exacerbate market volatility.
The tariff policy announcement on April 2 will reveal which countries and industries the Trump administration will target, and the market is expected to witness significant fluctuations influenced by the severity, duration, target countries and industries of the tariffs, as well as retaliatory measures from trade partners.
Mark Malek, Chief Investment Officer of 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 declines in U.S. stocks is greater than the potential for increases.”
Michael Arone, Chief Investment Strategist at State Street Global Advisors, remarked:
“Uncertainty continues to plague the market, leading to volatility. There may be more fluctuations on April 2 and after the deadline.”
Angelo Kourkafas, Senior Investment Strategist at Edward Jones, expressed:
“The announcement on April 2 may ‘not be a one-off event’; it is an important milestone, but ultimately it does not completely eliminate all uncertainties.”
Matthew Aks, Senior Strategist at Evercore ISI, cautioned:
“The market reaction on April 2 ‘will largely depend on’ the timing of future tariffs, especially industry tariffs, and the speed of responses from other countries to reciprocal tariffs. If other countries retaliate, this will pose risks of an escalation cycle, potentially undermining any sense of relief.”
According to CCTV News reports, Trump, while on Air Force One heading to Florida, responded to reporters’ questions on whether he would be willing to discuss reaching agreements to lower tariffs on the U.S. with countries like the UK, stating, “If we can get something out of this deal, it is possible—but you know, we’ve been taken advantage of for 40 years, even longer. That won’t happen again. But yes, I would certainly be open to it.”
