Large Tariff Shock Could Trigger US And Global Recession, Says JP Morgan

J.P. Morgan in its recent note said that the newly announced U.S. tariffs could lead to a significant economic downturn, potentially pushing both the U.S. and global economies into recession. The tariffs, unveiled by President Donald Trump on Liberation Day, represent a broad-based hike on imports into the U.S., starting with a minimum 10% tariff on April 5.

The effective tariff rates are set to rise more sharply on April 9, targeting a wide range of trading partners. The highest tariffs will be imposed on China and other Asian economies, with a substantial 20% tariff on the European Union, marking a significant shock to the global economic outlook. The lack of additional tariffs on imports from Canada and Mexico offers only modest relief.

J.P. Morgan's analysis suggests that if fully implemented, the effective U.S. tariff rate could approach 25%, impacting a base of $3.3 trillion in U.S. goods imports. This would equate to a tax increase of approximately $660 billion, or 2.2% of GDP, dwarfing any tax hikes in recent decades. The impact on inflation is expected to be substantial, potentially adding close to 2% to the Consumer Price Index (CPI) this year.

The brokerage notes that while they are not making immediate changes to their forecasts, the full implementation of these policies would constitute a substantial macroeconomic shock. This shock could be magnified by its impact on market sentiment and potential retaliatory measures from affected countries.

J.P. Morgan emphasises that these policies, if sustained, would likely push the U.S. and global economies into recession this year. The coming days will be crucial as the implementation and negotiation processes unfold, determining the long-term impact of these tariffs.