TLDR:
- President Trump will announce new “reciprocal tariffs” on April 2, dubbed “Liberation Day”
- Wall Street experts warn markets may be underestimating the severity of upcoming tariffs
- Previous tariffs include 25% on foreign vehicles and 10% tariffs on Chinese imports
- March jobs report (releasing Friday) expected to show 135,000 jobs added, potentially revealing economic slowdown
- Multiple countries including China and EU preparing retaliatory measures against US tariffs
The Escalating Trade War
President Donald Trump’s administration is preparing for what could be a pivotal week in global trade relations. On April 2, dubbed “Liberation Day,” Trump is expected to announce a new round of reciprocal tariffs that could significantly reshape global commerce. Markets have already reacted nervously, with the S&P 500 falling nearly 3% and the tech-heavy Nasdaq dropping almost 4% in the final trading week of the first quarter.
The tariff announcements are part of a broader strategy that has been unfolding since Trump’s inauguration ten weeks ago. During this short period, his administration has already implemented two rounds of 10% tariffs on Chinese imports. They’ve also announced 25% tariffs on imported cars and certain auto parts set to begin April 3.
Additionally, 25% tariffs have been placed on steel and aluminum imports. These actions have affected America’s closest trading partners and cast doubt on the future of the U.S.-Mexico-Canada Agreement negotiated during Trump’s first term.
Wall Street analysts are increasingly concerned that markets may not be fully prepared for what’s coming. Goldman Sachs’ economics team believes investors will be surprised by the severity of the tariffs. Their survey indicates market participants expect roughly a 9-percentage-point reciprocal tariff rate, but Goldman predicts the initial proposal will be higher.
“Administration officials have explicitly stated that the soon-to-be announced tariff rates are intended as the basis for negotiation, which incentivizes the administration to propose higher rates at the outset,” wrote Alec Phillips, Goldman’s chief political economist. This approach is consistent with recent tactics used with Canada and Mexico.
Ajay Rajadhyaksha, global chairman of research at Barclays, described the recent 25% tariffs on foreign vehicles as “a bigger deal than the market is making it out to be.” He views it as “a statement of intent” and warned that “April 2 is something that markets can’t dismiss.”
Economic Concerns and Market Reactions
The tariff tensions come at a time when economic data already shows signs of slowing growth coupled with persistent inflation. February data from the Bureau of Economic Analysis revealed prices increased more than expected while consumer spending fell short of projections.
The University of Michigan Consumer Sentiment survey showed inflation expectations for the next year jumped to 5% in March. This marks the highest level since November 2022 and has fueled market concerns about potential stagflation.
Corporate guidance is also reflecting these pressures. According to FactSet, 68 of the 107 S&P 500 companies that issued first-quarter guidance provided negative outlooks. This exceeds both the five-year average of 57 companies and the ten-year average of 62.
Friday’s March jobs report will be closely watched as a key indicator of economic health. Economists expect the report to show the US economy added 135,000 jobs in March, down from 151,000 in February. The unemployment rate is projected to remain steady at 4.1%.
Morgan Stanley chief US economist Michael Gapen believes the risks surrounding this report are asymmetric.
“We think it would take a lot of employment growth to alleviate fears of a sharper slowdown in the economy, while a mildly below-consensus print could fuel those concerns,” he wrote.
The overall market impact has already been felt in recent weeks. The S&P 500 fell about 2% on a single day (Friday, March 28) following economic data releases that stoked inflation and growth concerns.
Global Responses and Trade Strategy
The Trump administration describes reciprocal tariffs as charging other countries what they charge the United States. This calculation factors in not just direct tariffs but also VAT taxes, currency levels, and possibly even military spending.
The administration is focusing on 20 to 25 countries with the largest trade deficits with the U.S. These include China, the European Union, India, Vietnam, South Korea, Japan and Taiwan. Analysts expect these levies to start at 10% to 20%.
These initial rates are designed to open the door for bilateral trade talks. Such negotiations could lead to exclusions, lower rates, or complete rollbacks of tariffs for certain trading partners.
America’s trading partners haven’t been sitting idle. European nations are preparing duties on bourbon, motorcycles, and other U.S. goods for April. China has announced plans to impose up to 15% tariffs on U.S. agricultural products and has warned of additional countermeasures if reciprocal tariffs are enacted.
Even Canada, one of America’s closest allies, is seeing consumers boycott U.S. products in response to the trade tensions. India has attempted to get ahead of potential tariffs by removing its digital tax on online services and indicating willingness to cut tariffs on some U.S. imports.
The tariffs directed at China appear to be among the most likely to remain in place. They form part of a broader strategy to reshape U.S.-China relations amid growing rivalry between the world’s two largest economies.
U.S. Trade Representative Jamieson Greer is expected to declare China in violation of the Phase One trade deal negotiated during Trump’s first term. Analysts are watching to see whether the administration will follow the enforcement mechanism in the deal or skip the process and impose even higher tariffs.
These would add to the 20% tariffs the administration recently implemented on $489 billion of Chinese imports. The administration may also propose raising duties on Chinese-made ships arriving at U.S. ports as part of efforts to revitalize America’s shipbuilding industry.
Economists warn that tariff levels could approach those not seen since the 1930s, when high tariffs deepened the Great Depression. Capital Economics forecasts that the average U.S. tariff rate will rise in the second quarter by 10 percentage points for imports from most countries—and by 60% for those from China.
Henrietta Treyz, director of economic research at Veda Partners, believes the trade war will be “massively disruptive.” She adds, “There’s no off-ramp. I don’t think there is a leash on the president’s trade ambition until a general election cycle a year from now.”
Strategists are advising clients that tariff escalation isn’t fully priced into stocks. BCA Research Chief Global Strategist Matt Gertken sees a bear market and recession as increasingly likely.
David Lefkowitz, head of U.S. equities at UBS Global Wealth Management, has reduced expectations for S&P 500 earnings growth to 6% by year-end, citing concerns that tariffs could hit the higher end of his projected range.
While much attention focuses on the April 2 announcements, trade experts note that other investigations are likely to follow. The administration is expected to announce Section 301 investigations into unfair trade practices, potentially focusing on semiconductors, pharmaceuticals, and shipbuilding.
Though these investigations are typically allotted 270 days, analysts believe tariffs could be implemented much sooner. The steel and aluminum tariffs already imposed are likely to remain in place, as they can be justified under national security considerations.
The trade situation remains highly fluid, with multiple scenarios possible. Investors like Kimball Brooker, co-head of First Eagle’s Global Value Team, are focusing on quality companies with in-demand products that can pass tariff costs to customers and remain resilient during economic uncertainty.
As April 2 approaches, businesses, investors, and consumers alike are bracing for potential disruptions to global trade flows and the broader economic landscape.
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