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JPMorgan economists warned that newly announced tariff measures might disrupt U.S. economic momentum, increasing the risk of a near-term recession. The policy could generate nearly $400 billion in revenue, roughly 1.3% of GDP, marking the largest tax increase since 1968.
The bank estimates these measures might raise personal consumption expenditures (PCE) inflation by 1.0% to 1.5% in 2025, mainly in the second and third quarters. This increase in consumer prices could reduce household purchasing power, potentially leading to negative growth in real disposable income.
Impact On Consumer Spending
Consequently, real consumer spending might decline, risking the economy’s stability. The analysis does not include the effects of falling exports and decreased investment spending, which are expected to face additional pressure.
Reports of retaliatory actions from trading partners are emerging, contributing to potential downside risks. Also, uncertainty about the tariffs’ scope and communication could negatively impact business sentiment and capital expenditure, which are already weakening.
While reduced investment might help balance the savings-investment gap and current account deficit, the immediate economic costs could overshadow any advantages. JPMorgan plans to update its forecasts as more details regarding the policy and global reactions become available.
This analysis underscores a pressing issue: fresh tariff measures are likely to weigh on the US economy more than initially assumed. Though they stand to raise a considerable sum for the government, the side effects include a higher cost of goods and weaker consumer activity. The forecast adjustment in personal consumption expenditures, primarily between April and September next year, suggests a clear pinch on household budgets. If prices on everyday essentials start rising sharply, which appears likely from their projections, the average person will have to cut back somewhere. That pullback could well be visible in the next few quarters.
Secondary Effects On Trade And Investment
Households will feel it where it hurts — in purchasing power — and that’s not theoretical. When adjusted for inflation, actual after-tax income might start slipping into negative territory. Historically, that’s when we start seeing belt-tightening turn into broader economic slowdown.
What’s not yet captured in these calculations are secondary effects, particularly from the export and capital spending sides. Those tend to move slower but often exert a lasting drag. We’re not just talking about shifts in domestic behaviour; if goods become harder to sell overseas, especially due to retaliatory tariffs, then output could shrink further. The implications here are not encouraging for those with medium-term exposure.
Also worth paying attention to is the feedback loop involving investment. With uncertainty clouding how far the measures eventually reach, companies delaying or cancelling project spending is not a remote risk. Investment has already shown signs of softening, even without these developments. We see clear pressure points emerging — and not only on industrial activity, but also on how markets might price in growth potential across sectors sensitive to capital expenditure volatility.
The irony? A fall in investment may improve the gap between domestic saving and investment, which helps the current account. But that hardly cushions the blow to the broader cycle. In essence, the risks stack up faster than the buffers.
We’ll be watching for further policy clarification, and following new foreign trade responses closely, particularly from those economies most exposed to cross-border industrial flows. Timing matters. If updates come in piecemeal, rather than in cohesive form, that may deepen negative sentiment.
Those managing rate- or inflation-sensitive positions should now be re-evaluating their positioning. The direction of consumer activity, export volumes, and capital formation are now subject to higher downside probability than we had thought even a few weeks ago. There’s little room for complacency in the current configuration.
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