JPMorgan has issued a stark warning that President Donald Trump’s newly proposed tariffs if fully implemented, could drive both the U.S. and the global economy into recession.
The financial institution’s latest analysis points to significant economic risks associated with the policy, which would raise the effective U.S. tariff rate to 25%, the highest level in decades.
The tariffs, which start at a baseline of 10% and go even higher for some countries, are expected to have wide-reaching consequences for inflation, economic growth, and international trade relations. According to JPMorgan, the tariff hikes would shave approximately 2.2% off U.S. GDP while adding nearly 2% to the consumer price index (CPI), exacerbating inflationary pressures at a time when the Federal Reserve is struggling to stabilize prices.
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“We view the full implementation of these policies as a substantial macroeconomic shock not currently incorporated in our forecasts,” said Nora Szentivanyi, global economist at JPMorgan. “This shock will likely be magnified by its impact on sentiment and through the retaliation of countries facing significant increases in their tariff rates.”
Immediate Impact: Stock Market Plunges as Investors Panic
The immediate fallout from Trump’s tariff announcement was evident on Wall Street. The Dow Jones Industrial Average futures plummeted by more than 1,200 points on Thursday morning as fears of a global trade war sent shockwaves through financial markets. Investors, already wary of economic uncertainty, responded with a broad selloff that saw major indices tumble.
The technology sector was hit the hardest. Companies such as Apple, Microsoft, and Nvidia saw their stock values decline sharply, with Apple losing nearly 5% in pre-market trading. Tech firms are particularly vulnerable to tariffs because many of their components and final products are manufactured in China or sourced from other international suppliers. The new tariffs threaten to drive up production costs, disrupt supply chains, and dampen demand for high-priced consumer electronics.
Semiconductor companies, which rely heavily on Chinese markets, also suffered significant losses. Shares of Nvidia and AMD each dropped more than 6% as investors worried about retaliatory measures from China that could restrict access to critical materials like rare earth elements—key components in chip manufacturing.
Retaliation Looms as China, EU, and Others Prepare Countermeasures
The global response to Trump’s tariff policy has been swift. China, the European Union, and other major U.S. trading partners are already gearing up for retaliatory measures, a move economists warn could accelerate the path toward a global recession.
China’s Ministry of Commerce issued a statement calling the tariffs “unacceptable” and vowing a “strong response” that could include levies on American exports, restrictions on key commodities, and potential curbs on business operations for U.S. companies in China. The EU has also signaled it is preparing countermeasures, with European Commission officials warning that U.S. exports such as automobiles and agricultural products could be targeted.
The economic fallout from retaliatory tariffs could be particularly damaging for American farmers and manufacturers, who rely heavily on exports to markets such as China and Europe. Soybean producers, already reeling from previous trade disputes, could face further losses if Beijing imposes new tariffs on U.S. agricultural goods. The auto industry, another key player in international trade, is also at risk, with European tariffs on U.S.-made cars potentially leading to job losses and production cuts.
Economists Fear Global Recession as Trade War Escalates
JPMorgan’s analysis suggests that if these tariffs remain in place for an extended period, the risks of a full-blown global recession will become increasingly likely.
“We thus emphasize that these policies, if sustained, would likely push the US and global economy into recession this year,” Szentivanyi added.
The firm’s report highlights the dangers of a worldwide economic slowdown, particularly as global supply chains remain fragile following years of pandemic-related disruptions.
The impact of a trade war will not be limited to the U.S. and its primary trade partners. Emerging markets, which rely on stable trade conditions for growth, could see a sharp contraction in economic activity as uncertainty grips international financial markets. The tariffs could also worsen inflationary pressures worldwide, making it more difficult for central banks to manage monetary policy effectively.
However, JPMorgan has yet to revise its official economic forecasts, as Szentivanyi stated that the firm is waiting to see how Trump’s tariff policies are implemented in the coming weeks. However, given the severity of the potential economic shock, market analysts are already preparing for a turbulent period ahead.
The uncertainty surrounding Trump’s tariff strategy is already causing unease among investors, business leaders, and policymakers. As global markets react to the potential fallout, the risk of an economic downturn looms larger than ever.