As the April 2nd U.S. tariff policy approaches, market uncertainty is expected to peak. Investors need to brace for volatility. President Trump has expressed some openness to reaching tariff agreements with other countries, but he hinted that any agreements will only be finalized after the tariffs take effect on April 2nd.
Following the worst first-quarter start for the S&P 500 since 2020, analysts are warning that the potential for further declines outweighs any chances for upward movement. Future tariffs and retaliation will be critical, with market reactions largely dependent on the timing of tariffs and the speed at which other nations respond with reciprocal measures.
Three Major Tariff Scenarios
According to Citi’s report, three primary scenarios were identified based on survey results, each with varying impacts on the market:
Scenario 1: Only Reciprocal Tariffs Announced: If the Trump administration only announces reciprocal tariffs based on the Most Favored Nation (MFN) tariff difference, the result will be relatively mild. Approximately 25.5% of surveyed respondents believe this outcome is likely, with India, Thailand, and Indonesia expected to be most impacted.
Scenario 2: Escalated Retaliation Measures: If other countries not only impose retaliatory tariffs on U.S. products but also further limit exports to the U.S., this will cause a significant market shock. Analysts expect this could lead to a rise in global trade tensions, with U.S. consumers facing higher prices for goods.
Scenario 3: Global Trade Agreement Reached: The best-case scenario is that the U.S. reaches a trade agreement with other countries, easing market concerns and providing stable expectations for global trade. According to Citi’s analysis, while this is less likely, it would have a positive impact on global markets if realized.
Conclusion
As April 2nd approaches, the market remains uncertain about the future of U.S. tariffs. Citi’s three scenarios highlight different market reactions, and whichever outcome occurs, it will have profound effects on the global economy and financial markets. Investors need to stay alert during this crucial time and prepare for possible changes.