Markets to likely grind lower as tariffs prove durable and impact the economy

Investing.com -- Wolfe Research expects markets to continue declining as the latest round of U.S. tariffs takes effect, warning that the measures are likely to be long-lasting and harmful to economic growth. 

The firm stated that “markets will likely grind lower as these tariffs prove durable and start to actually impact the economy.”

President Donald Trump’s new “reciprocal” tariff policy, announced on April 2, includes a baseline 10% tariff on all imports, with higher rates for about 60 countries with which the U.S. runs large trade deficits. 

Wolfe Research noted that “the total impact of the rates announced today is well in excess of the high end of our range.” 

The firm estimated that the announcement alone increases “average U.S. tariffs by 14.4%, which amounts to a 22.8% total increment based on all Trump 2.0 tariffs announced to date, and a 25.2% all-in level.” 

The latest tariffs are expected to raise about $470 billion in revenue, bringing the total from all tariffs announced to date to approximately $777 billion.

While some investors have assumed these tariffs will be quickly negotiated away, Wolfe Research expressed skepticism. 

“We are skeptical that the tariffs will be rapidly removed through a series of deals, for three reasons.” The analysts cited the 10% baseline rate as a key obstacle, noting that “no matter what concessions our trading partners offer, they cannot get below that floor, which limits the room for relief.” 

They also pointed out that the tariffs are based on trade deficits rather than actual tariff disparities, making negotiations more difficult. 

Additionally, the firm stated that “the comments and tone from Trump and his team around this announcement do not suggest that they are eager for deals to get rid of these tariffs.”

Wolfe Research warned that the market has yet to fully price in the negative economic effects, stating that “tariffs at this scale raise serious concerns about growth, and we do not think they are reflected in earnings estimates.” 

As the tariffs take effect, the firm sees further downside ahead.