On April 2, 2025, President Trump announced a new tariff regime that surprised most observers with its severity, and many risk assets have responded with significant losses and volatility. The risk asset downturn reflects, at least in part, the increased probability of a recession, reduced corporate profits, and higher inflation from tariff-driven price increases.

Given the political nature of the tariffs and their dependence on decisions made by the President and other global leaders, it is extremely difficult to predict what happens next. The fact that this is an internally created issue rather than a response to an external shock like the COVID-19 pandemic contributes to the sense of uncertainty and market stress.

A useful way to think about potential outcomes may be to think through what goals could be pursued with tariffs, how likely they are to succeed—and, perhaps more importantly, how quickly they could be resolved.

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