JP Morgan has sounded a sharp warning over the economic fallout of the newly announced Trump tariffs, calling them the largest tax increase since the Revenue Act of 1968. The firm believes the policy could substantially raise inflation, erode household incomes, and elevate the risk of a full-blown U.S. recession in 2025.
Estimated $400 billion in revenue, but at a macroeconomic cost
According to JP Morgan, the Trump administration’s reciprocal tariff plan, if implemented as outlined, is estimated to generate just under $400 billion in revenue on a static basis—equivalent to roughly 1.3% of U.S. GDP. However, the revenue gain comes with steep economic trade-offs, especially in terms of inflation and consumer spending.
Tariffs expected to lift inflation by 1.0% to 1.5%
JP Morgan projects that the Trump tariffs could add between 1.0% and 1.5% to personal consumption expenditures (PCE) inflation in 2025. The bank expects the majority of this inflationary impact to occur in the second and third quarters, leading to higher prices for consumer goods across the board.
Real incomes under pressure as prices rise
As consumer prices surge, JP Morgan warns that household purchasing power will likely decline, with real disposable income growth turning negative during the middle quarters of 2025. This erosion in real income could limit the ability of households to maintain current levels of spending.
Consumer spending slowdown may push economy toward recession
The U.S. economy relies heavily on consumer spending as a growth engine. JP Morgan believes the pressure on real incomes may cause a contraction in real consumer spending, which could in turn bring the U.S. economy dangerously close to recessionary conditions. This risk is heightened if retaliatory measures from other nations further disrupt trade and supply chains.
JP Morgan’s analysis highlights the delicate balancing act facing policymakers as protectionist measures return to the forefront of U.S. trade policy. While the Trump tariffs aim to restore trade parity, they may also bring significant strain to the domestic economy.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. Stock market investments are subject to market risks. Please consult a qualified financial advisor before making any investment decisions.
