Stress Scenario - Tariffs And U.S.-China Trade Conflict

2025-05-14 06:04:00 ET

Summary

• Using the macroeconomic data as a foundation and considering recent developments in the tariff conflict, we propose two stress-test scenario assumptions.
• To ensure that the correlation matrix used in the propagation step is compatible with the set of shocks on the selected independent risk factors, we search for an estimation window that resembles the market environment envisaged for our tariff scenario.
• The final scenario modelling choice is the segmentation of the scenario. We divide portfolio assets into groups according to asset class and economic region and use different sets of independent risk factors to apply decoupled shocks to these asset groups.

In recent weeks, the US administration has implemented worldwide tariffs that have significantly impacted global trade dynamics. On April 2 ^nd , so called reciprocal tariffs were introduced, including:

• 10% universal tariff ,
• 20% tariff on EU goods,
• 34% tariff on Chinese goods

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