Tariffs to Drive Global Markets in Volatile 2025, JPMorgan Finds

As we step into 2025, the global economic landscape is shaping up to be a volatile one, with tariffs taking center stage. J.P. Morgan's Global Investment Strategy Team has identified these trade barriers as a significant driver of market uncertainty and potential growth and inflation impacts. Let's delve into the implications of these tariffs on the U.S. economy, U.S. large-cap equities, and the U.S. dollar's strength relative to major trading partners.



Economic Growth and Inflation

According to J.P. Morgan's strategists, the proposed tariffs on Mexico and Canada, if imposed for a prolonged period, would likely lower their expectations for U.S. economic growth by 0.5% to 1% and increase their inflation outlook by the same amount. This is due to the significant uncertainty these tariffs create in the economic and market outlook. The strategists believe that the U.S. large-cap equities, which are trading at premium valuations, would likely face more elevated stock market volatility as investors grapple with the implications. Additionally, they expect continued U.S. dollar strength relative to major trading partners.

U.S. Large-Cap Equities

The imposition of significant tariffs on Canada, Mexico, and China could lead to increased stock market volatility, particularly for U.S. large-cap equities, which are currently trading at premium valuations. Investors should consider diversifying their portfolios, allocating a portion of their assets to quality bonds and alternatives, and closely monitoring the situation to navigate this volatility effectively.



U.S. Dollar Strength

The U.S. dollar's strength relative to major trading partners is expected to be affected by these tariffs, with potential consequences for U.S. imports and exports. The tariffs on Mexico and Canada could lead to a decrease in U.S. imports from these countries, as the higher tariffs make their goods more expensive relative to other countries. On the other hand, the stronger U.S. dollar could make U.S. exports more expensive for foreign buyers, potentially leading to a decrease in U.S. exports. The overall impact on the U.S. dollar's strength and U.S. imports and exports is uncertain and depends on various factors, including the duration of the tariffs, the retaliation of trading partners, and the overall economic impact of the tariffs.

In conclusion, the imposition of significant tariffs on Canada, Mexico, and China could lead to increased stock market volatility, particularly for U.S. large-cap equities, and have potential consequences for the U.S. dollar's strength relative to major trading partners. Investors should consider diversifying their portfolios, allocating a portion of their assets to quality bonds and alternatives, and closely monitoring the situation to navigate this volatility effectively. The duration of tariffs and retaliation of trading partners will be key variables to watch to evaluate the overall growth and inflation impact.