Citibank Analyzes U.S. Tariff Policy: Three Possible Market Scenarios on April 2nd

By Ying Zhao

Translated by CryptoDavid

As the unveiling of the U.S. tariff policy on April 2 approaches, market uncertainty is reaching new heights. Investors are advised to brace themselves for potential turbulence.

According to a report by China CCTV News on Saturday, U.S. President Donald Trump plans to announce new tariffs in the coming days. While Trump expressed openness to negotiating tariff agreements with other countries, he indicated that any deal would likely occur after the new tariffs take effect on April 2. When asked whether this might happen before the tariff announcement, he replied, “No, it’s likely to happen later.” Trump also reiterated plans to impose tariffs on pharmaceuticals but declined to disclose specific rates.

In its latest report, Citibank outlined three major scenarios and their potential market impacts. The scenarios range from moderate announcements of reciprocal tariffs to aggressive policies including industry-specific tariffs. Analysts warn that the timing of the tariffs and the reactions from affected nations will play a critical role in shaping market dynamics.

Three Tariff Scenarios

Citibank’s report identifies three main scenarios as April 2 approaches:

1. Scenario One: Reciprocal Tariffs Only If the Trump administration announces reciprocal tariffs based on Most-Favored-Nation (MFN) average tariff gaps, this would be a relatively mild outcome. According to a survey by Nomura Securities, 25.5% of respondents believe this scenario is likely, with countries like India, Thailand, and Indonesia expected to be most affected. Market reactions would likely be limited, and the U.S. Dollar Index (DXY) may not experience significant fluctuations.

2. Scenario Two: Reciprocal Tariffs Plus VAT Including Value Added Tax (VAT) in the tariff policy would represent a more aggressive move, possibly triggering risk-averse sentiment and a stronger dollar. Under this scenario, European nations like Germany (MFN tariff gap with VAT at 20.4%), France (21.1%), and Spain (21.8%) would face higher risks. In Asia, Japan (10.5%), India (29.5%), and Thailand (13.0%) could also be impacted. The U.S. Dollar Index might rise by 50-100 basis points immediately after the announcement, while global equities could decline. Interest rates in Asia might drop, with India and Thailand potentially seeing reductions of 5-7 basis points.

3. Scenario Three: Aggressive Industry-Specific Tariffs This scenario involves reciprocal tariffs, VAT, and additional industry-specific tariffs. Trump has previously proposed a 25% tariff on imported automobiles, which could affect countries like Mexico, South Korea, Japan, Canada, and Germany. He has also hinted at tariffs on semiconductor chips and pharmaceuticals, which could hit South Korea and Singapore hardest. Moreover, the U.S. might extend existing tariffs on Mexican and Canadian goods or impose tariffs on Venezuelan oil imports. This scenario could lead to the most dramatic market reactions, with the U.S. Dollar Index surging further and USD/JPY experiencing sharp declines.