"April 2" Trading Handbook: Three Possible Scenarios
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"April 2" Trading Handbook: Three Possible Scenarios
Citi interprets U.S. new tariff policy, three market scenarios possible on April 2.
Navigating Web3 tides with focused insightsAuthor: Zhao Ying, Wall Street Insights
As the U.S. tariff policy announcement on April 2 approaches, market uncertainty is set to reach a new peak—investors should buckle up for turbulence ahead!
According to CCTV News on Saturday, on March 28 local time, it was learned that U.S. President Trump plans to unveil new tariffs in the coming days. He expressed some openness to reaching tariff agreements with other countries but hinted any such deals would come after the April 2 tariff measures take effect.
When asked whether this would happen before the April 2 tariff hike announcement, he said: "No, probably later." Trump also reiterated his plan to announce pharmaceutical tariffs but declined to disclose specific rates.
In its latest report, Citi outlined three main scenarios and their potential market impacts: First, if only reciprocal tariffs are announced, the market reaction would be relatively limited. Second, if reciprocal tariffs are combined with a value-added tax (VAT), the dollar index could immediately rise by 50–100 basis points, while global equities may fall. Third, if sector-specific tariffs are added on top of reciprocal tariffs and VAT, the market reaction could be even more severe.
After the S&P 500 posted its worst start to a quarter since 2020, analysts have increasingly warned that downside risks outweigh upside potential. Some analyses point out that future tariffs and retaliatory actions will be key—the market’s response on “April 2” will depend heavily on the timing of the tariffs, particularly sector-specific ones, as well as how quickly other nations respond to reciprocal tariffs.
Three Tariff Scenarios
Citi's report notes that with the April 2 tariff announcement imminent, it has summarized three primary scenarios based on its analysis and assessed their potential market implications:
Scenario One: Reciprocal tariffs only. If the Trump administration announces only reciprocal tariffs on April 2—based on simple average most-favored-nation (MFN) tariff gaps—this would represent a relatively mild outcome. According to a Nomura survey, about 25.5% of respondents believe this scenario is possible, with India, Thailand, and Indonesia likely facing the greatest impact. In this case, market reactions may be limited, and the U.S. dollar index might not experience significant volatility.
Scenario Two: Reciprocal tariffs plus VAT. If the tariff policy includes a VAT component, it would constitute a more aggressive move, potentially triggering risk-off sentiment and a stronger dollar. Under this scenario, Germany’s MFN tariff gap (including 19% VAT) stands at 20.4%, France at 21.1%, and Spain at 21.8%. Asian economies are also at risk—Japan at 10.5%, India at 29.5%, and Thailand at 13.0%. This scenario could lead the dollar index (DXY) to surge 50–100 basis points immediately following the announcement, though the dollar-yen pair might weaken. Global equities could decline, while Asian interest rates may fall, with India and Thailand potentially dropping 5–7 basis points.
Scenario Three: More aggressive tariff policies. Beyond reciprocal tariffs and VAT, this could include sector-specific tariffs. For example, Trump previously announced a 25% tariff on imported finished vehicles (potentially affecting Mexico, South Korea, Japan, Canada, and Germany) and suggested possible tariffs on semiconductor chips and pharmaceuticals (with South Korea and Singapore most affected). Additionally, the 25% tariff on Mexico and Canada might not be extended, or tariffs could be imposed on countries importing Venezuelan oil. Market reactions under this scenario could be the most intense, with the dollar index strengthening further while dollar-yen plunges sharply.
Markets Brace for Turbulence!
The rollercoaster ride for U.S. stocks has only just begun. The S&P 500 is heading toward its worst first-quarter performance since 2020, and the upcoming tariff announcements could further amplify market volatility.
The April 2 tariff statement will reveal which countries and industries the Trump administration targets. Markets are expected to swing violently, with U.S. equities highly sensitive to the severity, duration, targeted nations and sectors, and retaliatory measures from trade partners.
Mark Malek, Chief Investment Officer at Siebert Financial, said:
"I'm a strong bull, but I want to tell you that between now and next week—especially before earnings season begins—the potential for downside in U.S. stocks exceeds the upside."
Michael Arone, Chief Investment Strategist at State Street Global Advisors, said:
"Uncertainty continues to weigh on markets, driving volatility. April 2 and the period beyond could bring even more turbulence."
Angelo Kourkafas, Senior Investment Strategist at Edward Jones, said:
"The April 2 announcement may 'not be a one-off event.' It's an important milestone, but ultimately it doesn't eliminate all uncertainty."
Matthew Aks, Senior Strategist at Evercore ISI, cautioned:
"The market reaction on April 2 will 'depend heavily on' the timing of future tariffs—especially sector-specific ones—and how quickly other countries respond to reciprocal tariffs. If others retaliate, we face escalation risks that could undermine any sense of relief."
According to CCTV News, when asked aboard Air Force One en route to Florida whether he’d be willing to discuss tariff-reduction deals 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, maybe longer. That’s not going to happen anymore. But yes, of course, I’m open to it."
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