How to view tariffs? Deutsche Bank: The market underestimated the risks on the first day, with April 1 being a key turning point

On his first day in office, Trump did not immediately impose tariffs, leading to a 180-degree reversal in market expectations. Both Deutsche Bank and Barclays warned that the market underestimated the risks of tariffs, with April 1 being an important date for tariff imposition.

According to a report by Xinhua News Agency on the 21st, U.S. President Trump stated on the 20th that he is considering imposing tariffs on Mexico and Canada, potentially imposing a 25% tariff on all goods imported from Mexico and Canada starting February 1. This statement eased market expectations, leading to a reversal in market sentiment.

How should tariffs be viewed now? Both Deutsche Bank and Barclays pointed out that the market should not be overly complacent, as long-term risks cannot be ignored, and April 1 will be an important observation date.

Deutsche Bank noted in its latest report that the market's reaction on Trump's first day in office may have underestimated long-term risks.

Although no new tariff measures were immediately announced this week, there remain many uncertainties and potential risks in the Trump administration's trade policy. The current market pricing reflects only a 5% general tariff, and underestimating Trump's tariff policy may overlook its potential impact on global trade and U.S. inflation.

Based on experiences from his first term, Trump's more aggressive trade policies are typically implemented in the second or third year. Looking ahead, Deutsche Bank believes that April 1 will be a key date, as several reports will return to him based on Trump's "America First Trade Policy" memorandum.

Barclays also mentioned the significance of April 1 in its report:

Trump did not impose tariffs on the first day; instead, he issued a presidential memorandum titled "America First Trade Policy," which investors should view as a blueprint for the next steps regarding tariffs. The memorandum instructs certain departments and agencies to conduct specific reviews and to submit reports before April 1, 2025. These reports could serve as catalysts for new tariff proposals or adjustments to existing tariffs.

The timeline of April 1 provides time for the Senate to confirm Lutnik as Secretary of Commerce and Jamison Greer as U.S. Trade Representative. We believe these positions may need to be filled first before the Trump administration can begin changing tariff policies. Changes to tariff policies may be announced after the reports on April 1, with tariffs taking effect 30-60 days later.

The memorandum signals a broader grant of tariff powers to the president; is the uncertainty intentional?

Deutsche Bank analysts closely examined the White House's trade memorandum and found that it contains numerous provisions granting the president the executive power to impose tariffs.

In addition to the known Section 338, 301, and 232 investigations, as well as the International Economic Emergency Powers Act and currency manipulation-related provisions, several new provisions authorizing the president to impose tariffs have been added. These measures provide the president with greater executive power to impose tariffs, laying the groundwork for the broadest trade powers held by a president since the post-Bretton Woods era.

Deutsche Bank further pointed out that the uncertainty is intentional:

Trump mentioned tariffs multiple times when signing the executive order, covering a wide range (up to "100%") and involving multiple countries (Canada, the EU, Spain, etc.). This indicates that the Trump administration intends to create ambiguity in tariff policy, with a high degree of uncertainty regarding the final outcome. This uncertainty is clearly detrimental to global growth (especially in manufacturing) and will hinder the release of dollar risk premiums.

In addition, Deutsche Bank reminds investors not to view tariffs merely as a trading tool. Trump explicitly mentioned using tariffs as a strategic revenue tool in his inaugural address.

The establishment of the U.S. National Tax Agency may not only be a repositioning of the role of Customs and Border Protection but could also signify a broader shift in the powers of the tariff-collecting agency, including increasing the president's discretion over tariff revenues.

Finally, Deutsche Bank stated that although market pricing of tariff risk premiums has risen compared to November last year, the current market pricing of Trump's fiscal/tariff policy combination remains at a relatively low level within the possible range. Inflation expectations, dollar risk premiums, central bank interest rate pricing, and the performance of tariff-sensitive sectors in the stock market all convey similar messages.

Risk Warning and Disclaimer

The market carries risks, and investment should be approached with caution. This article does not constitute personal investment advice and does not take into account the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article align with their specific circumstances. Investment based on this is at one's own risk