Global shares were mixed on Tuesday as investor sentiment remained skittish ahead of the expected announcement of further US tariffs on 2 April, though analysts and strategists admitted there remained many unknowns about Donald Trump's plans.
It was reported over the weekend that the US President had pushed his team to "be more aggressive" on his mooted 'reciprocal' tariffs, but that policy had not yet been agreed or set, which sent stock markets roiling at the start of the week.
What tariffs are likely on Wednesday
Wednesday is expected to see the US administration announce a new round of reciprocal tariffs on "a range of countries", said UBS chief investment officer Mark Haefele.
Potentially, these will focus on Europe and Asia excluding China, he added.
And they come after the US has already imposed a range of tariffs on China, Mexico, and Canada, plus levies on steel, aluminum, and derivative products, and newly announced tariffs on autos and auto parts.
Trump's plans for reciprocal tariffs are intended to compensate not only for other countries’ tariffs but also their non-trade barriers, including taxes such as VAT.
"The range and size of the tariff increases remains quite uncertain, not least because of the complexity of the issue and the sheer difficulty in assessing the appropriate tariff for differing goods/countries," said Rupert Thompson, IBOSS chief economist.
Tariff hikes are likely to be significantly higher than was generally expected a couple of months ago, he said, though the market is alive to what might be in store as the White House jumped the gun last week with the 25% tariff on auto imports, and recent threats of a secondary 25% tariff on any country buying Russian oil and Venezuelan oil.
"As with all his proclamations on tariffs, it is impossible to know whether and for how long they will actually be implemented," said Thompson.
What products face tariffs and for how long?
Trump has threatened to impose additional tariffs of 25% on all imports from the EU, reciprocal tariffs on countries with higher bilateral import duties than the US, 25% on chips and pharmaceuticals as well as 25% on nations that import oil from Venezuela.
Products that could potentially be targeted include pharmaceuticals, semiconductors, lumber and copper, to address other countries’ persistent trade surpluses with the US and grievances related to high tariff and non-tariff barriers, said UBS's Haefele.
The 2025 tariffs are much larger than those from Trump's first term, with measures so far raising the average US tariff by nine percentage points to 11.5%, according to calculations by Berenberg, while UBS estimates that the effective tariff rate has increased from 2.5% to approximately 9%, the highest since World War II.
"Wednesday’s reciprocal tariffs could push the effective tariff rate another 4 percentage points higher," Haefele said.
"Anything further than that could move tariffs beyond a revenue-raising 'sweet spot,' in our view. Globally, the risk of high tariffs disrupting trade and economic activity would potentially offset any US federal revenue gains that the Trump administration seeks to use to further domestic policies."
Haefele says the time period of the tariffs is another unknown, but "we believe that the news flow could become more supportive as we approach the second half of the year".
Tariff responses
The reciprocal and products tariffs are likely to prompt responses from different countries, ranging from immediate retaliation to diplomatic negotiations.
When Trump slapped the 25% on steel and aluminium imports, for example, the EU immediately responded with what it called "a series of countermeasures" and Canada responded with its own tit-for-tat levies, while the UK said it would try and negotiate a response.
European Commission president Ursula von der Leyen this week said: "We do not necessarily want to retaliate, but if it is necessary we have a strong plan to retaliate and we will use it."
Judging by Trump's rhetoric and actions so far, said Berenberg chief economist Holger Schmieding, the US president "seems less willing to strike deals and more ready to accept significant damage to the US economy" than most economists and investors had assumed initially.
As a result, Berenberg was among many banks to substantially raise its forecasts for US inflation and lower projections for US and eurozone growth modestly.
"In the end, tariffs hurt almost everybody," said Schmieding.
These forecasts are based on the assumption that Trump would raise the average tariff on US imports by less than 10 percentage points.
By recently describing the new 25% tariffs on cars and car parts as not negotiable, he went further than that, which Schmieding said has raised the average US tariff to 11.5%.
This will be raised further with the reciprocal tariffs on 2 April.
"We expect serious negotiations with the EU and other US trading partners to start immediately after the announcements on 2 April," said Schmeieding. "These talks will likely yield some results."
PM Kier Starmer, for instance, said on Tuesday that he remained hopeful that the UK is well positioned to reach a trade agreement with Trump in the coming weeks, saying UK-US talks were "well advanced", while Trump has suggested he may reduce tariffs on China to facilitate a deal with TikTok's parent company.
After negotiations and some tit-for-tat retaliation, Berenberg expects Trump to raise the average US tariff rate to around 15% by the end of June, up from 2.5% in 2024.
"We also project that the crippling uncertainty about US tariff policy will ease somewhat thereafter," said Schmieding.