MW JPMorgan says Trump administration may be 'business unfriendly'

By Barbara Kollmeyer

Wall Street's biggest bank is questioning the viability of one of the market's core hopes over the Trump administration.

Wall Street's biggest bank is questioning the viability of one of the market's core hopes over the Trump administration, following shock tariff announcements on Canada and Mexico,

"In short, the risk is that the policy mix is tilting (perhaps unintentionally) into a business-unfriendly stance," said a team led by JPMorgan Chase's chief economist Bruce Kasman, in a note that published Monday.

Tuesday will see 25% tariffs kick in on Canada and Mexico imports, with an extra 10% on China goods.

U.S. stocks initially staged an epic rally after President Donald Trump was elected in November, driven by hopes for tax cuts and other policies favorable to businesses, though those early gains had mostly evaporated.

The S&P 500 SPX closed Friday up 4% from the election day close on Nov. 5.

Now futures are pointing to heavy losses on Monday. S&P 500 futures (ES00) fell 1.6%.

Just last week, strategists at the bank were cautioning that a "balance between protectionism and business-friendly policies is crucial for sentiment."

Kasman said the bank isn't making changes to U.S. or global forecasts for now, but their modeling suggests that the planned tariffs will throw Canada and Mexico into recession. Those countries will likely lean toward interest rate cuts even as inflation rises, while the Federal Reserve's initial response will likely be a cautious one to gauge impact of tariff shocks on growth and inflation, he said.

The economists said the tariffs took them by surprise.

"While awaiting clarity on actual policies, it is important to emphasize that this weekend's announcements point toward a materially different policy mix than is built into our 2025-2026 outlook," they said.

The announced tariffs are "not only larger, but different in nature than the actions incorporated in our baseline forecast," said Kasman. With large tariffs concentrated on its neighbors, the resulting negative supply shock will likely have "far bigger spillovers to the U.S." That's in addition to surging costs for moving goods across borders, depressing North American business sentiment, another thing economic models can't capture.

The bank also discussed unintended consequences, such as fallout from deporting a million people in the U.S. and a slowing inflow of new immigrants. Deportations are seen knocking 0.5% off GDP by 2026, but the shock could be magnified due to the sectors affected - agriculture, hospitality and construction and a tighter U.S. labor market, said the economists.

-Barbara Kollmeyer

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February 03, 2025 05:36 ET (10:36 GMT)

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