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President Donald Trump’s tariff announcement scheduled for April 2 is set to give the market a negative surprise, according to a Goldman Sachs (GS+0.86%) economist.
Trump administration officials have said initial duties are meant as a basis for talks — which incentivizes them to set high rates, Alec Phillips wrote in a note to clients. A recent survey shows market participants expect an initial 9 percent reciprocal tariff rate, but it may be double that level, he said.
Stocks surged on Monday as the president said he may scale back the planned tariffs. The Nasdaq Composite index gained 2.3%, as all Magnificent 7 stocks climbed, the S&P 500 gained 1.8%, and the Dow Jones industrial average gained 1.4%, or almost 600 points.
The reciprocal tariffs may stop short of his pledge to equalize with levels charged by foreign countries on U.S. goods, Trump told reporters. The administration may also delay duties on particular lines of goods.
Despite the lowered pitch of Trump’s rhetoric, the new duties are likely to cover almost all of U.S. trade, Phillips said. They could boost the U.S.’s effective overall tariff rate by 10 percentage points, with a risk scenario of 15 percentage points. His prior actions have boosted the rate by 3 percentage points.
Additional uncertainties include Trump’s proposed 25% duties on countries that buy Venezuelan oil, his insistence that value added taxes (VATs) are discriminatory against U.S. goods, and the possibility that currency undervaluation could be included in the calculations. The U.S. dollar’s strength makes most other currencies look undervalued.
One bright spot: While the tariffs could be implemented immediately under the president’s emergency authority, postponements in imposing duties on Mexico and Canada show that the administration is willing to delay.
“As the countries targeted under a reciprocal tariff look likely to account for three times the amount of imports as Canada and Mexico, there is an even stronger argument for moving deliberately,” Phillips wrote.