Investing.com -- UBS analysts downplayed concerns over widespread U.S. trade tariffs following President Trump’s directive to evaluate reciprocal import taxes.
While the move signals potential trade tensions, UBS does not anticipate “sustained blanket universal tariffs”, instead expecting a more targeted and negotiation-driven approach.
Markets rallied on the announcement, with the S&P 500 rising 1% and 10-year Treasury yields falling 9 basis points, as investors took comfort in the lack of immediate action.
UBS noted that the directive instructs U.S. trade officials to develop country-specific tariffs considering factors like value-added taxes (VATs), subsidies, and digital services taxes.
However, there is “no set timeline for implementation,” which UBS believes suggests this could be more of a negotiation tactic rather than a firm commitment.
While the prospect of tariffs on key industries such as autos, semiconductors, and pharmaceuticals adds to uncertainty, UBS pointed out that "threats lead to negotiation."
The bank notes that the European Union has already responded preemptively, offering to cut tariffs on U.S. cars to avoid escalation.
Similarly, following a meeting with India’s prime minister, UBS said Trump announced efforts to reduce high Indian tariffs on U.S. goods in exchange for energy and defense purchases.
The bank warns that aggressive tariffs could trigger retaliatory measures from U.S. trading partners, leading to an escalating cycle of trade restrictions.
However, it believes the most likely outcome is "selective tariffs", with markets watching closely for any shift toward full enforcement.
Despite trade uncertainty, UBS remains optimistic on equities, forecasting the S&P 500 to reach 6,600 by year-end.
The firm also highlights gold, high-grade bonds, and certain hedge fund strategies as effective hedges against trade volatility. “We expect market resilience, particularly in U.S. equities, as economic growth remains intact,” UBS said.