Stock market tanks after Trump’s global tariff announcements. (0:15) Tariff formula baffles experts. (1:32) Odds of a U.S. recession jump. (2:40) Show NotesS&P at risk of another 20% dropEpisode transcripts: seekingalpha.com/wsb Sign up for our daily newsletter here and for full access to analyst ratings, stock quant scores, dividend grades, subscribe to Seeking Alpha Premium at seekingalpha.com/subscriptions.
Chapter 1: What is the impact of Trump's global tariff announcements on the stock market?
Welcome to Seeking Alpha's Wall Street Lunch, our afternoon update on today's market action, news, and analysis. Good afternoon. Today is Tuesday, April 3rd, and I'm your host, Kim Kahn. Our top story today is our only story, tariffs. That's right, it's the day after tariffs, and markets are tumbling.
The major stock averages are all down more than 4%, flights to bonds push yields down, and the 10-year Treasury yield is bumping up against 4%. Deutsche Bank's Jim Reed said, In short, the tariffs put in place last night were extraordinary both in terms of scale and in how they were calculated, with President Trump announcing reciprocal tariffs under the International Emergency Economic Powers Act
as he declared a national emergency over the trade deficit. Markets caught off guard by the severity of Trump's tariffs reacted dramatically, Jacob Falcon Crone said. He's the global head of investment strategy at Saxo Bank.
Chapter 2: How did the market react to the new tariffs imposed by Trump?
This was the worst-case scenario for tariffs, and we're not priced into markets, which is why we're seeing such a risk-off reaction, Sanctuary Wealth's chief investment strategist Marianne Bartles said about stocks. Oil prices tumbled more than 5% on concerns about a global trade war recession. The tariffs were bigger than expected, UBS commodity analyst Giovanni Stovano said.
The question is how other nations will respond, including whether it will see stimulus measures. So, how are these new tariffs calculated? According to the U.S. Trade Representative, reciprocal tariffs are calculated as the tariff rate necessary to balance bilateral trade deficits between the U.S. and each of our trading partners.
Chapter 3: How are the new tariffs calculated according to the U.S. Trade Representative?
This calculation assumes that persistent trade deficits are due to a combination of tariff and non-tariff factors that prevent trade from balancing. Tariffs work through direct reductions of imports, the agency said. They also provided a formula with a lot of Greek letters, and that's available in our story.
Chapter 4: Why are experts skeptical about Trump's tariff calculations?
But what it really boils down to is that the tariff percentages are trade deficit divided by imports. Scott Lincoln Comey, who's the vice president of general economics at the Cato Institute, called the reciprocal rate calculations, quote, "...utterly detached from reality. President Trump thinks a trade deficit is a national emergency."
To wit, the formula behind the so-called reciprocal tariffs is simply a function of bilateral trade deficits. Contra Trump, the trade deficit is not inherently bad, and imposing tariffs won't reduce it anyway, Erica York, vice president of federal tax policy at the Tax Foundation, said. On the economic front, the odds of the U.S.
recession this year have surged to 54 percent, according to New York-based financial exchange and prediction market CalSheet. That's the highest level since September last year. Cauchy also noted U.S. recession odds in Q1 2025 had been as low as 17%. According to Fitch Ratings, Trump's tariffs result in an overall U.S. effective tariff rate last seen a century ago in 1909.
They also significantly raise U.S. recession risks. J.P. Morgan's Michael Ferroli said, "...the President's highly anticipated tariff announcement delivered at the very hawkish end-of-the-range expected outcome..." By our calculations, this takes the average effective tariff rate from what had been prior to yesterday's announcement of around 10% to just over 25%.
Ferroli also said that reciprocal tariffs could boost personal consumption expenditure prices by 1% to 1.5% this year. And in the Wall Street Research Corner, Sanctuary Wells Bartels said the Trump administration has outlined the worst-case scenario on tariffs thrusting the S&P into risk of correcting as much as 20%.
If the S&P can't hold 5,500, investors may see the index drop by another 5% to 10% to a bottom of 5,200 to 5,400. We're expecting rocky markets for the next few months and through the end of the first half of the year. We've already seen a 10% correction, and there is a risk of a 15-20% correction now, she added.
And B of A says tariffs could hit the S&P 500's operating income by 32% if there is equal retaliatory force. In addition, prolonged negotiations could stall activity, spiraling into recession. Calls to boycott U.S. goods could ramp further, but pricing power and currency moves could mollify tariff impacts, strategist Savita Subramanian said. That's all for today's Wall Street Lunch.
Look for links for stories in the show notes section. Don't forget, these episodes will be up with transcriptions at SeekingAlpha.com slash WSP. And for a wealth of coverage on stocks and ETFs, go to SeekingAlpha.com slash subscriptions. you
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