Tariff Impact: April Tariffs May Be More Severe Than Markets Expect, Says Wolfe Research

Understanding Tariff Calculations

• 💡 The administration's framework for tariffs extends beyond direct tariffs to include value-added taxes (VATs), which are seen as potential unfair export subsidies.
• 📈 Including VATs in calculations can lead to surprisingly high tariff numbers, even if the final imposed rates are lower than these theoretical maximums.

Auto Tariffs and Market Reaction

• 🚗 Auto tariffs are expected to be based on a 2019 National Security study under Section 232, with potential global application.
• ⚠️ Uncertainty and a high volume of "noise" make it difficult for markets to price in tariff announcements in advance, leading to more reactive trading.
• 🤝 There's a hope for accommodations for Canada and Mexico regarding auto tariffs, possibly through side letters in the USMCA, to protect the US auto supply chain.

Market Uncertainty and Pricing

• ❓ Investors and analysts struggle to model the impact of potential tariffs due to the unclear substance of the announcements.
• 📊 This lack of clarity increases the event risk associated with actual tariff announcements, making it difficult to assign concrete numbers to financial models.