TLDR
- JPMorgan raised US recession probability to 60% following Trump’s sweeping tariffs
- China announced 34% retaliatory tariffs on all US goods starting April 10
- Dow plunged over 2,200 points (5.5%) with Nasdaq entering bear market territory
- Federal Reserve Chair Powell warned tariffs are “higher than anticipated”
- Economists predict tariffs could boost prices by 1-1.5% in 2025
The announcement of sweeping tariffs by President Donald Trump has sent shockwaves through financial markets and prompted economists to raise recession warnings. In what analysts are calling the “largest tax increase” since the Vietnam War era, Trump’s “Liberation Day” tariffs have triggered a massive stock market selloff and a swift retaliatory response from China.
JPMorgan’s economics team has increased its forecast for a US recession from 40% to 60% following Trump’s announcement. The tariffs impose duties of at least 10% on all countries, with higher “reciprocal” tariffs on certain trading partners.
China responded quickly, announcing it would impose additional tariffs of 34% on all US imported goods beginning April 10. This immediate retaliation has heightened fears of an escalating trade war.
Market Meltdown
The market reaction was swift and severe. On Friday, the Dow Jones Industrial Average plummeted more than 2,200 points, a 5.5% drop that pushed it into correction territory. The S&P 500 sank nearly 6%, capping its worst week since 2020.
The tech-heavy Nasdaq Composite dropped 5.8%, falling into bear market territory. This market rout followed Thursday’s $2.5 trillion wipeout, creating a devastating one-two punch for investors.
Traders fled to the safety of government bonds, with the 10-year Treasury yield falling to 3.9%, approaching its lowest levels since October. This flight to safety underscores the growing anxiety about economic prospects.
Economic Impact
Economists at JPMorgan predict the tariffs could boost prices by 1% to 1.5% this year. The inflationary effects are expected to materialize in the middle quarters of 2025.
The bank’s team believes the impact will be magnified through retaliatory tariffs, supply chain disruptions, and decreased business confidence in the US. While tariff hikes allow room for fiscal policy easing, this will only slightly reduce the negative effects.
JPMorgan researchers predict US gross domestic product will decline by about 2 percentage points. Global GDP is expected to decrease by 1 percentage point, based on a model using a 20% tariff hike plus retaliatory action from China and Europe.
Federal Reserve Chair Jerome Powell addressed the tariffs for the first time, describing them as “higher than anticipated.” He added that it is “too soon to say” what the proper rate path should be for monetary policy.
Traders have increased their bets on interest rate cuts this year to five. The expectation is that the Fed will set aside its efforts to cool inflation to tackle the bigger risk of economic slowdown.
The monthly jobs report, released Friday but overshadowed by tariff news, showed that the US added 228,000 jobs in March, beating estimates. However, the unemployment rate ticked up to 4.2%.
President Trump, posting on Truth Social on Friday, added to market concerns by stating that his policies “will never change” and warning that China “played it wrong.”
JPMorgan’s note bluntly concludes that with these trade policies, “there will be blood.” The bank also warns that “sustained restrictive trade policies and reduced immigration flows may impose lasting supply costs that will lower US growth over the long run.”
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