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.

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. 

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.

DISCLOSURES

Index definitions:

Standard and Poor’s 500 Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The index was developed with a base level of 10 for the 1941–43 base period.

The Bloomberg Eco Surprise Index shows the degree to which economic analysts under- or over-estimate the trends in the business cycle. The surprise element is defined as the percentage difference between analyst forecasts and the published value of economic data releases.

The MSCI World Index is a free float-adjusted market capitalization index that is designed to measure global developed market equity performance.

The NASDAQ 100 Index is a basket of the 100 largest, most actively traded U.S companies listed on the NASDAQ stock exchange. The index includes companies from various industries except for the financial industry, like commercial and investment banks. These non-financial sectors include retail, biotechnology, industrial, technology, health care, and others.

The Russell 2000 Index measures small company stock market performance. The index does not include fees or expenses.

We believe the information contained in this material to be reliable but do not warrant its accuracy or completeness. Opinions, estimates, and investment strategies and views expressed in this document constitute our judgment based on current market conditions and are subject to change without notice.

The views, opinions, estimates and strategies expressed herein constitutes the author's judgment based on current market conditions and are subject to change without notice, and may differ from those expressed by other areas of J.P. Morgan. This information in no way constitutes J.P. Morgan Research and should not be treated as such. You should carefully consider your needs and objectives before making any decisions. For additional guidance on how this information should be applied to your situation, you should consult your advisor.

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