Trump administration's new tariff policy leaves markets uncertain. Investors should focus their strategy on the long term
J.P. Morgan Wealth Management
President Donald Trump announced 25% tariffs on most goods imported from Mexico and Canada (energy products from Canada are set to face a lesser 10% tariff) and a 10% additional tariff on all goods from China, scheduled to take effect on February 4. The White House states the actions aim to advance U.S. priorities on immigration and drug trafficking, though specific goals for lifting the tariffs are unspecified. While a last-minute compromise is possible, the U.S. looks likely to proceed with tariffs, and the counterparties seem set to retaliate.
These tariffs create significant uncertainty in our economic and market outlook. Initially, our strategists believed significant tariffs on Canada and Mexico were unlikely due to their potential negative impact on North American growth. They had assumed a substantial tariff hike from 20% to 50% on imports from China, however, which was incorporated in their inflation outlook.
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Here are a few notes on how our strategists are considering the risks if the tariffs on Mexico and Canada are imposed for a prolonged period of time:
- They would likely lower their expectations for U.S. economic growth by 0.5% – 1% and increase their inflation outlook by the same amount.
- They expect it is likely we will see more elevated stock market volatility as investors grapple with the implications given that U.S. large-cap equities are trading at premium valuations.
- They believe we will likely see continued U.S. dollar strength relative to major trading partners.
- They would expect even greater economic impacts on Mexico and Canada, as they heavily rely on exporting goods to the U.S.
Canada and Mexico are most at risk to tariffs
In times like this, it’s important to remain focused on ensuring your portfolio withstands uncertainties without derailing your near-term needs and long-term goals. A resilient portfolio is properly diversified and tailored to your long-term plan.
All market and economic data as of 02/03/2025 are sourced from Bloomberg Finance L.P. and FactSet unless otherwise stated.
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