Next Wednesday is a day of reckoning for the Trump administration—and indeed for economies across the world. “Liberation Day,” as Trump has called it, will confirm further tariff action against a raft of countries.

While Trump has conceded that the policies announced may not be at the most extreme end of the scale, he is already threatening key trading partners with tougher sanctions than planned if they try to harm America in return for tariffs.

Writing on Truth Social, the social media platform he owns, Trump wrote in the early hours of this morning: “If the European Union works with Canada in order to do economic harm to the USA, large-scale tariffs, far larger than currently planned, will be placed on them both in order to protect the best friend that each of those two countries has ever had!”

It is worth noting here that the EU is not a country.

It is unclear precisely what deals Trump believes the EU and Canada are drawing up to damage U.S. interests.

However, the tirade came shortly after Trump announced a 25% tariff on all autos entering America, regardless of their country of origin.

This prompted a firm response from European Commission President Ursula von der Leyen, who warned in a statement that “tariffs are taxes—bad for businesses, worse for consumers equally in the U.S. and the European Union.”

Von der Leyen added that the EU will assess the impact of the automotive tariff—a key industry for the EU—and other measures expected to be announced by President Trump in the coming days.

“The EU will continue to seek negotiated solutions, while safeguarding its economic interests,” the statement added.

Meanwhile Canada’s new Prime Minister, Mark Carney, described the auto tariffs as a “very direct attack” adding: “We will defend our workers. We will defend our companies. We will defend our country.”

Market reaction

If there’s one thing the market doesn’t like, it’s uncertainty.

And teetering on the edge of a trade war between some of the biggest economic powerhouses on the planet certainly adds to the feeling of unease.

As Mark Haefele, chief investment officer at UBS Global Wealth Management, wrote in a note this morning: “The threat of further tariff escalation remains a key concern, but our economic forecasts do not call for a recession in the U.S.

“In our base case, a wide range of selective tariffs and counteractions are likely to lead to slower economic growth compared to last year, but they should not prevent the U.S. economy from expanding by around 2%—its historical trend rate—this year.”

This take is at odds with a Deutsche Bank survey shared earlier this week, which revealed that 43% of the 400 analysts surveyed saw America dipping into a recession in the next 12 months.

UBS is expecting continued volatility in April, it added, but said its core message is to stay invested in stocks.

“That tariff hit was evident more broadly among global equities,” added Deutsche Bank economist Jim Reid. “In the U.S., the Magnificent Seven (–3%) saw a particularly large slump, reversing course after its strongest three-day performance since the U.S. election.

“In turn, that dragged down the S&P 500 (–1.12%) … which just goes to show how much influence the Mag Seven still have. Some of the more defensive sectors including consumer staples (+1.42%) and utilities (+0.7%) put in a solid performance, but Nvidia (–5.74%) and Tesla (–5.58%) led the declines, ending the session as the fifth and seventh worst performers in the S&P 500, respectively.”

On autos, Goldman Sachs can see a path to some domestic carmakers like Tesla navigating the ripple effects of the tariff announcement.

The EV maker has conceded that—despite its CEO having close ties to the White House—policies out of the Oval Office “inherently expose” U.S. carmakers to retaliatory action.

Goldman economists Mark Delaney, Will Bryant, Morgan Leung, and Aman Gupta wrote: “We continue to believe that tariffs are a downside risk to earnings for both original equipment manufacturers (OEMs) and suppliers, although the degree of risk for OEMs in our coverage (Tesla, Rivian, GM, and Ford) will depend on how much they can raise prices and/or take share, adjust supply chains, and the final extent of tariffs on auto parts (and how broadly tariffs will be applied on certain high-level categories is unclear to us from the White House fact sheet).”

They added: “There are some scenarios where the U.S. OEMs can fully offset tariffs (or perhaps be net beneficiaries) through a combination of factors (adjusting supply chains, production, and pricing).”