2 reasons investors still need to worry about tariffs even as Trump's tone softens

• Markets cheered news Trump could soften tariffs, but risks remain high, Goldman Sachs says.
• The tariff rate will likely be higher than investors are expecting, the bank says.
• The administration has said its reciprocal tariff plan will kick in on April 2.

The market may be headed for more bruising volatility after stocks rose sharply on the possibility of softer tariffs next month.

Goldman Sachs outlined two reasons shareholders should brace for a negative surprise on April 2, when the White House plans to announce a slate of reciprocal tariffs and trading partners around the world.

Though the reciprocal tariff plan has been well-telegraphed, investors were encouraged Monday when news broke that the duties on imports would be more selective than initially thought. Risk sentiment bounced back, catapulting major indexes higher.

But even a more benign approach to tariffs would be widespread and highly consequential, Goldman said. While Treasury Secretary Scott Bessent said that about 15% of countries might face additional levies, that still covers nearly all US trade.

While it's harder to deduce the tariff rate for targeted countries, Goldman projects it will be high enough to unsettle investors.

"We believe the risks lean toward an initial tariff announcement that negatively surprises markets," analysts led by chief economist Jan Hatzius wrote.

The bank flagged two reasons investors should buckle up ahead of April 2.

First, consider that tariffs are meant as a negotiation tool. This would encourage the Trump administration to push for higher tariff rates to ramp up pressure during talks with other countries.

"This occurred in the recent experience with Canada and Mexico tariffs, which twice involved a steep tariff rate that was rescinded mostly or entirely after a few days," Hatzius said.

Second, low expectations for tariff rates among market participants increase the risk of a shock when the duties kick in. The bank said a recent survey found that the average expectation for the tariff rate among investors is about nine percentage points. Goldman warned that the initial rate could be double this figure.

The comparison to Canada and Mexico also illustrates the volatility that can come with back-and-forth negotiations. Policy fluctuations stirred major uncertainty among investors already this year, eventually leading the S&P 500 into correction territory in early March.

In the bank's view, the White House might try to be more deliberate in handling reciprocal duties, given that likely targets account for three times the imports of Canada and Mexico.