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Investment Strategy

Tariff Tensions: What it means for investors

President Trump announced a substantial increase in tariffs, pushing the effective U.S. rate to around 25%—the largest hike in over a century, exceeding essentially all expectations.

Markets are reacting swiftly, with global stocks falling, especially for companies dependent on international supply chains. U.S. 10-year Treasury yields and the dollar have dropped to their lowest level in over five months, ahead of the U.S. election.

What happened:

The plan introduces a 10% universal tariff on all U.S. imports, effective April 5, along with additional reciprocal tariffs with varying rates for trading partners, starting April 9. These tariffs aim to address perceived tariff and non-tariff trade barriers. Key levies include:

  •  The EU faces a 20% tariff, while the UK will see the 10% universal rate.
  • China faces a 34% hike, totaling 54% with earlier tariffs.
  • Elsewhere in Asia, Vietnam will see 46%, Taiwan faces 32%, India will get 26% and Japan 24%, among others.

These measures build on earlier tariffs, including 25% on steel and aluminum and the more recent 25% on autos, which took effect at midnight.

Notably, there are several exemptions:

  • Trade with Canada and Mexico is excluded for now, though ‘non-compliant’ USMCA goods still face a 25% tariff.*
  • Critical minerals, gold, pharmaceuticals, semiconductors, lumber, and copper remain untouched but are under separate investigations.

The largest tariff increase in over 100 years

JPM Economics estimates for potential U.S. effective tariff rate, %

Sources: Michael Cembalest “Eye on the Market”; Tax Foundation, GS Global Investment Research, JPM Global Economics. Data as of April 2, 2025.

What’s next:

The key questions are how long tariffs will last and how countries will negotiate or retaliate. The delayed start offers room for negotiation, but history shows this process can be messy. Countries typically fall into one of three categories: likely to negotiate, unlikely to negotiate but unlikely to retaliate, and likely to retaliate. Europe and China have vowed to respond. For the EU, tight deadlines and VAT issues add complexity. Officials are meeting on April 7 to discuss their response, with some suggesting a staggered approach, starting with services to minimize economic damage.

What it means for the economy:

While uncertainty is high, it's important to consider the two-way risks: Lowering trade barriers could benefit the global economy, but high tariffs and retaliation could worsen the situation.

Estimating the growth impact is challenging due to the evolving situation and lack of historical precedent, making it difficult to determine how costs will affect consumers or corporate margins. The inflation impact is also complex, as supply shocks and weaker demand can counterbalance each other.

Taking what we know at face value, estimates suggest a ‘stagflationary’ effect, with the U.S. experiencing the largest impact—negative growth and rising inflation. We initially estimate the recent announcement could reduce U.S. GDP growth by 1.5-2.0% if tariffs remain in effect, adding to the impact of earlier tariffs this year and increasing recession risks at the margin.

In Europe, growth could decline by around 0.5% over the next few quarters, considering the direct impact on exports and deteriorating sentiment. China's tariff hike is significant, but it’s notable that the moves so far this year have been less disruptive than the first trade war. Its exports to the U.S. have declined to about 15% of total exports, or 3% of GDP; that’s still meaningful, but it could be partially offset by fiscal stimulus.

To that point, how policymakers respond domestically, through monetary or fiscal stimulus, could mitigate some of the negative effects. The global impact of this regime shift is likely to bias monetary policy lower. On the news, markets have priced in additional Federal Reserve rate cuts, anticipating a policy rate of 3.5% by year-end. The ECB meets later this month, with markets pricing in an almost 90% chance of a cut, reaching a terminal rate around 1.75%.

What it means for investors:

The tariff end-state remains uncertain as negotiations and policy shifts will continue, and markets will likely reflect that uncertainty. This announcement makes us slightly less optimistic about U.S. risk assets and more inclined to emphasize diversification.

In these uncertain times, bonds can offer stability and income during growth shocks, while gold retains its safe haven status. Alternatives like hedge funds and infrastructure, which are less correlated with stocks and bonds, can also act as effective stabilizers. Currency market movements present an opportunity to reassess geographic exposure. Additionally, capturing tactical opportunities and managing elevated volatility through structured products can help navigate this period.

Your J.P. Morgan team is here to discuss what this might mean for your investment plan.

Index definitions

  • The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities and serves as the foundation for a wide range of investment products. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization.
  • The EURO STOXX 50 Index, Europe's leading blue-chip index for the Eurozone, provides a blue-chip representation of supersector leaders in the region. The index covers 50 stocks from 11 Eurozone countries. The index is licensed to financial institutions to serve as an underlying for a wide range of investment products such as exchange-traded funds (ETFs), futures, options and structured products.
  • The NASDAQ-100 Index is a modified capitalization-weighted index of the 100 largest and most active non-financial domestic and international issues listed on the NASDAQ. No security can have more than a 24% weighting. The index was developed with a base value of 125 as of February 1, 1985. Prior to December 21,1998 the Nasdaq 100 was a cap-weighted index.

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The U.S. just hiked tariffs to the highest rate in 100 years. What’s next?

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