According to WSJ and Washington Post, White House aides have drafted a proposal to impose tariffs of around 20 percent on most imports to the United States
- First scenario: 20% universal tariff on virtually all imports
- Second Scenario: an across-the-board tariff on a subset of nations that likely would not be as high as the 20% universal tariff option, after pushback from option 1
The announcement will come tomorrow at 4pm ET (after hours)
I have read today’s analyst saying the market is not expecting a very adverse announcement and for uncertainty to come down after tomorrow, hence there could be a negative market reaction to more negative than expected news
- Goldman expects U.S. tariffs to initially rise by 15 percentage points—matching their previous “risk case”, but anticipates that product and country exclusions will trim the effective increase to 9 points.
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“A realization of our new tariff baseline would likely come as a negative surprise to markets. Our recent survey of market participants indicated that the average investor expects the effective tariff rate to increase by roughly 9pp this year, while only a very small share (4%) expect an increase of 15pp or more.”
- Mike Wilson (Morgan Stanley)baseline is for higher tariff on China goods, product specific tariffs on European and Asia ex-China goods, and de-escalation on Mexico and Canada. But market could sell of to lower end of firm forecast (5500) if tariffs news are more restrictive than expected.
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He sees the announcement as “likely a stepping stone for further negotiations, as opposed to a clearing event,” with upside capped at 5,900 even in a better-than-expected announcement absent “clear reacceleration in earnings revisions breadth, something we are currently not seeing at the index level,” which could take it to 6,100 he says.
A worse than expected announcement likely takes the index back to the 5,500 level.
- BBG columnist Simon Flint Agrees with Goldman that equity risks are tilted lower and believes the projected 6pp tariff hike now and 8pp in 2025 are likely underestimated.
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He says because of recent news reports investors believe “tariffs may be applied with a scalpel rather than a sledgehammer,” but he says there are many risks:
- the opening numbers on April 2 may be larger than markets expect
- the assumption that tariffs will be revised down significantly may be wishful thinking.
- even if they are walked back, the constant flip-flopping is itself a drag.
- while the rest of the world may be playing nice for now, don’t mistake politeness for weakness.
- the damage to global cooperation, norms, and institutions could be long-lived and hard to reverse
He says current expectations for a “modest ~6 percentage point increase in tariffs due to reciprocal duties, and an 8 percentage point hike for 2025 as a whole” will likely prove to be too low. He builds off of Goldman’s work and comes up with his own table of expectations assuming all non-tariff barrier’s are taken into account.
If so, “we get an eye-watering 20.7 percentage point increase (as per the second row), drastically greater than the current expectations ‘priced in’.”
- USB Probabilities: Aggressive (50%) = tariff effective rate to 12%, Highly aggressive (35%) = tariff rate to 17-20%
