Economy & Markets

Lessons from “Liberation Day”: A guide to tariffs

Tariffied. Global markets went into risk-off mode following President Trump’s tariff announcements, with losses outsized in the United States.

The S&P 500 sold off -5.7% on Friday, marking the worst one-day performance since 2022. Sectors with stretched valuations sold off the most, with the tech sector lower by -6.3%, the Magnificent 7 off by -5.7%, and the tech-heavy NASDAQ 100 down -6.0%.

International equities didn’t fare much better. In Europe, stocks fell -4.6%, while Chinese (Hang Seng -1.5%) and Japanese (TOPIX -3.3%) equities also declined.

On top of all the equity moves, investors had to digest a decline in U.S. services activity, which points to declining business sentiment even before the tariff announcement.

Investors bought fixed income to hedge growth slowdown risks, and yields across the Treasury curve rallied. The 2-year (3.68%) and 10-year (4.03%) were lower by 18 basis points and 10 basis points, respectively. Futures markets increased their expectations of interest rate cuts this year by a full 25 basis points.

The dollar weakened on growth concerns. The greenback declined -1.8% versus the euro, -1% relative to the Canadian dollar, and -1.3% against the Mexican peso.

In commodities, oil (-7.4%) sold off below $70 per barrel as OPEC+ unexpectedly tripled its planned May oil supply increase. The move, likely influenced by U.S. pressure to lower prices and offset Iranian sanctions, marks a shift in OPEC+’s strategy. Gold (-2.4%) declined from its all-time high levels amid broad market selling.

Last Friday, China announced that it will impose a retaliatory 34% tariff on all U.S. imports starting April 10. U.S. equities extended their losses following the news.

Below, we recap the tariff announcements last week and give our take on what to do next.

Rumble in the Rose Garden

What was announced? President Trump is imposing a minimum 10% tariff on all exporters to the United States and additional reciprocal duties on approximately 60 nations with the largest trade imbalances with the United States. The tariffs will be implemented from April 5 to 9.

What are reciprocal tariffs? Reciprocal tariffs are trade duties imposed by a country in response to tariffs levied by another country, aiming to equalize the trade conditions between them. In the context of President Trump’s administration, reciprocal tariffs were part of a strategy to address perceived trade imbalances, and to protect domestic industries by imposing similar tariffs on imports from countries that had imposed tariffs on U.S. exports. This approach is intended to encourage negotiations and potentially lead to more favorable trade terms for the imposing country, though it can also lead to trade tensions and economic disruptions due to retaliation or changes in consumption (discussed further below).

As Michael Cembalest, our Chairman of Market and Investment Strategy, noted in his latest piece, Redacted, the tariff rates announced appear to be calculated as the greater of 10% or the country’s trade surplus (exports to the United States minus imports from the United States) divided by its exports to the United States. The table below indicates how that calculation shakes out for the six largest trade deficit countries targeted by reciprocal tariffs.

Sources: Census Bureau, Haver Analytics. Data as of December 31, 2024. Bloomberg Finance L.P. Data as of April 3, 2025.

What wasn’t included in the announcement?

Notably, the United States’ two largest trading partners, Canada and Mexico, were left off the list, and their existing 25% tariffs (with important carve-outs) will remain in place.
According to the executive order, some goods will be carved out (though they could face levies outside the scope of reciprocal tariffs), including:
- Steel/aluminum
- Copper
- Pharmaceuticals
- Semiconductors
- Lumber articles
- Bullion
- Energy materials that are not available in the United States

What’s the effect? This raises the average effective tariff rate in the United States to around 25% from around 5%. The new levies push the effective tariff rate to the highest level in over 100 years.

April 2nd tariffs exceeded expectations

U.S. effective tariff rate, %

Source:Michael Cembalest “Eye on the Market”; Tax Foundation GS Global Investment Research, J.P.Morgan Global Economics. Data as of April 3, 2025. Note: Estimates take tariffs at face value and do not adjust for potential negotiations or exclusions. Analysis ignores sector specific tariffs which have been carved out .

This is higher than market participants were expecting. According to a Goldman Sachs survey, only 65% of investors actually expected reciprocal tariffs to be levied, and if they were levied, only 10%–15% of them thought they would raise the tariff rate by 15 percentage points or more. Big questions are whether these are negotiating positions, and if the rates will decline after negotiations, or if the new rates will be durable.

What does it mean? We estimate yesterday’s announcement could impact U.S. GDP by 1.5% to 2%, potentially reaching 2.5% when considering all tariffs this year. This could alter the economic outlook and increase recession risks beyond the 25% previously estimated. Uncertainties remain regarding legal challenges, negotiations and subsector exclusions, ensuring continued trade policy uncertainty.

What do we think? The announced tariffs land at the higher end of our expectations prior to the press conference. All else being equal, we anticipate the effect of the tariffs to present a meaningful headwind to U.S. growth and increase inflation.

What to do? This makes us marginally less positive on U.S. risk assets and marginally more positive on diversification, namely through structures, fixed income and gold. Ensure portfolios are diversified and resilient to withstand market cycles and align with your long-term goals. Our order of operations for investors considering their next moves would be as follows:

1. Structured notes: Leverage market volatility with structured notes that are designed to offer downside protection and potential for enhanced yield. These instruments can provide strategic opportunities to capture upside while offering buffers against market drawdowns.

2. Gold: Consider gold as a potential diversifier, as it may offer resilience amid volatility and geopolitical tensions. With recent market retreats, it might be worth evaluating whether to build a position, given its exemption from tariff measures and potential for price appreciation.

3. Bonds: Consider using bonds as a hedge against growth challenges by moving out of cash and into core bonds, which are designed to offer resilience against growth shocks. Diversified, laddered bond portfolios may help increase yield and duration without sacrificing quality, potentially providing a reliable foundation in uncertain times.

Above all, remember that market volatility is a normal feature of markets. We’ve had growth shocks before, and through it all, sticking to your strategic asset allocation with equities for capital appreciation, fixed income for downside growth resilience and opportunistic themes at the tactical margins has proven itself over time.

Drawdowns happen, and historically so have recoveries

Various S&P 500 drawdown events and forward returns, %

Source: Bloomberg Finance L.P. Data as of April 3, 2025. Past performance is no guarantee of future results. It is not possible to invest directly in an index.

This chart provides a list of S&P 500 drawdown events, their peak and trough dates, magnitude of pullback, 3-month, 6-month-12-month, 24-month, and cumulative returns. For the Tariff Tantrum (2025) event, the prior peak was 02/19/2025 and the trough was 04/03/2025. The magnitude of the pullback was -12%, 3-month returns are not available, 6-month returns are not available, 12-month returns are not available, 24-month returns are not available, and cumulative returns are not available. For the Sahm Rule Triggered (2024) event, the prior peak was 07/16/2024 and the trough was 08/05/2024. The magnitude of the pullback was -8%, 3-month returns were 12%, 6-month returns were -5%, 12-month returns are not available, 24-month returns are not available, and cumulative returns are 4%. For the Rate Hikes and Inflation (2022) event, the prior peak was 01/03/2022 and the trough was 10/12/2022. The magnitude of the pullback was -25%, 3-month returns were 11%, 6-month returns were 14%, 12-month returns were 22%, 24-month returns were 64%, and cumulative returns are 51%. For the Covid-19 (2020) event, the prior peak was 02/19/2020 and the trough was 03/23/2020. The magnitude of the pullback was -34%, 3-month returns were 40%, 6-month returns were 45%, 12-month returns were 75%, 24-month returns were 99%, and cumulative returns are 141%. For the QT / U.S.-China Trade War (2018) event, the prior peak was 09/20/2018 and the trough was 12/24/2018. The magnitude of the pullback was -20%, 3-month returns were 19%, 6-month returns were 25%, 12-month returns were 37%, 24-month returns were 58%, and cumulative returns are 130%. For the Industrial Recession (2015-2016) event, the prior peak was 05/21/2015 and the trough was 02/11/2016. The magnitude of the pullback was -14%, 3-month returns were 13%, 6-month returns were 20%, 12-month returns were 27%, 24-month returns were 45%, and cumulative returns are 195%. For the U.S. Debt Downgrade (2011) event, the prior peak was 04/29/2011 and the trough was 10/03/2011. The magnitude of the pullback was -19%, 3-month returns were 16%, 6-month returns were 29%, 12-month returns were 32%, 24-month returns were 53%, and cumulative returns are 391%. For the European Debt Crisis (2010-2012) event, the prior peak was 04/23/2010 and the trough was 07/02/2010. The magnitude of the pullback was -16%, 3-month returns were 11%, 6-month returns were 24%, 12-month returns were 31%, 24-month returns were 34%, and cumulative returns are 428%. For the Global Financial Crisis (2007-2009) event, the prior peak was 10/07/2009 and the trough was 03/09/2009. The magnitude of the pullback was -36%, 3-month returns were 39%, 6-month returns were 53%, 12-month returns were 69%, 24-month returns were 95%, and cumulative returns are 698%. For the Tech Bubble (2000-2002) event, the prior peak was 03/24/2000 and the trough was 10/09/2002. The magnitude of the pullback was -49%, 3-month returns were 19%, 6-month returns were 11%, 12-month returns were 34%, 24-month returns were 45%, and cumulative returns are 595%. For the Early 90s Recession (1990) event, the prior peak was 07/16/1990 and the trough was 10/11/1990. The magnitude of the pullback was -20%, 3-month returns were 7%, 6-month returns were 28%, 12-month returns were 29%, 24-month returns were 38%, and cumulative returns are 1,726%. For the Market Crash (1987) event, the prior peak was 08/25/1987 and the trough was 12/04/1987. The magnitude of the pullback was -34%, 3-month returns were 19%, 6-month returns were 19%, 12-month returns were 24%, 24-month returns were 57%, and cumulative returns are 2,310%. For the Volcker Shock (1980-1982) event, the prior peak was 11/28/1980 and the trough was 08/12/1982. The magnitude of the pullback was -27%, 3-month returns were 36%, 6-month returns were 45%, 12-month returns were 58%, 24-month returns were 62%, and cumulative returns are 5,169%. For the Oil Crisis (1973-1974) event, the prior peak was 01/11/1973 and the trough was 10/03/1974. The magnitude of the pullback was -48%, 3-month returns were 14%, 6-month returns were 31%, 12-month returns were 38%, 24-month returns were 67%, and cumulative returns are 8,565%. For the Tech Crash (1968-1970) event, the prior peak was 11/29/1968 and the trough was 05/26/1970. The magnitude of the pullback was -36%, 3-month returns were 17%, 6-month returns were 24%, 12-month returns were 44%, 24-month returns were 60%, and cumulative returns are 7,688%. For the Financial Crisis (1966) event, the prior peak was 02/09/1966 and the trough was 10/07/1966. The magnitude of the pullback was -22%, 3-month returns were 13%, 6-month returns were 22%, 12-month returns were 33%, 24-month returns were 42%, and cumulative returns are 7,272%. For the Flash Crash (1961-1962) event, the prior peak was 12/12/1961 and the trough was 06/26/1962. The magnitude of the pullback was -28%, 3-month returns were 7%, 6-month returns were 20%, 12-month returns were 33%, 24-month returns were 56%, and cumulative returns are 10,214%. For the Suez Canal Crisis (1956-1957) event, the prior peak was 08/02/1956 and the trough was 10/22/1957. The magnitude of the pullback was -22%, 3-month returns were 6%, 6-month returns were 10%, 12-month returns were 31%, 24-month returns were 44%, and cumulative returns are 13,744%. For the Post WWII Crash (1946-1947) event, the prior peak was 05/29/1946 and the trough was 05/19/1947. The magnitude of the pullback was -28%, 3-month returns were 12%, 6-month returns were 11%, 12-month returns were 19%, 24-month returns were 7%, and cumulative returns are 39,090%. For the Fed Tightening (1937) event, the prior peak was 03/10/1937 and the trough was 04/28/1942. The magnitude of the pullback was -60%, 3-month returns were 15%, 6-month returns were 25%, 12-month returns were 54%, 24-month returns were 59%, and cumulative returns are 72,143%. For the Great Depression (1929-1939) event, the prior peak was 09/16/1929 and the trough was 06/01/1932. The magnitude of the pullback was -86%, 3-month returns were 93%, 6-month returns were 53%, 12-month returns were 121%, 24-month returns were 113%, and cumulative returns are 122,548%.

Updates have been arriving swiftly, and to ensure you stay informed, Michael Cembalest will host a webcast on Monday to discuss the latest developments, which will be available to clients and shared with you via email.

As always, your J.P. Morgan team is here to help.

RISK CONSIDERATIONS

Investments in commodities may have greater volatility than investments in traditional securities, particularly if the instruments involve leverage. The value of commodity-linked derivative instruments may be affected by changes in overall market movements, commodity index volatility, changes in interest rates, or factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments. Use of leveraged commodity-linked derivatives creates an opportunity for increased return but, at the same time, creates the possibility for greater loss.

The price of equity securities may rise or fall due to the changes in the broad market or changes in a company's financial condition, sometimes rapidly or unpredictably. Equity securities are subject to "stock market risk" meaning that stock prices in general may decline over short or extended periods of time.

Investing in fixed income products is subject to certain risks, including interest rate, credit, inflation, call, prepayment and reinvestment risk. Any fixed income security sold or redeemed prior to maturity may be subject to substantial gain or loss.

Investing in Structured Notes involves a number of significant risks. We have set forth certain risk factors and other investment considerations relating to the investment below. Not all investments are suitable (or in the best interest) for all investors. You should analyze the Structured Notes based on your individual circumstances, taking into account such factors as investment objectives, tolerance for risk, and liquidity needs.

All market and economic data as of April 2025 and sourced from Bloomberg Finance L.P. and FactSet unless otherwise stated.

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.

Past performance is not indicative of future results. You may not invest directly in an index.
The prices and rates of return are indicative, as they may vary over time based on market conditions.
Additional risk considerations exist for all strategies.
The information provided herein is not intended as a recommendation of or an offer or solicitation to purchase or sell any investment product or service.
Opinions expressed herein may differ from the opinions expressed by other areas of J.P. Morgan. This material should not be regarded as investment research or a J.P. Morgan investment research report.

Important Information

All companies referenced are shown for illustrative purposes only, and are not intended as a recommendation or endorsement by J.P. Morgan in this context.

All market and economic data as of April 2025 and sourced from Bloomberg Finance L.P. and FactSet unless otherwise stated.

The information presented is not intended to be making value judgments on the preferred outcome of any government decision.

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Investors should understand the potential tax liabilities surrounding a municipal bond purchase. Certain municipal bonds are federally taxed if the holder is subject to alternative minimum tax. Capital gains, if any, are federally taxable. The investor should note that the income from tax-free municipal bond funds may be subject to state and local taxation and the Alternative Minimum Tax (AMT).

This material is for informational purposes only, and may inform you of certain products and services offered by private banking businesses, part of JPMorgan Chase & Co. (“JPM”). Products and services described, as well as associated fees, charges and interest rates, are subject to change in accordance with the applicable account agreements and may differ among geographic locations. Not all products and services are offered at all locations. Please read all Important Information.

General Risks & Considerations

Any views, strategies or products discussed in this material may not be appropriate for all individuals and are subject to risks. Investors may get back less than they invested, and past performance is not a reliable indicator of future results. Asset allocation/diversification does not guarantee a profit or protect against loss. Nothing in this material should be relied upon in isolation for the purpose of making an investment decision. You are urged to consider carefully whether the services, products, asset classes (e.g., equities, fixed income, alternative investments, commodities, etc.) or strategies discussed are suitable to your needs. You must also consider the objectives, risks, charges, and expenses associated with an investment service, product or strategy prior to making an investment decision. For this and more complete information, including discussion of your goals/situation, contact your J.P. Morgan team.

Non-Reliance

Certain information contained in this material is believed to be reliable; however, JPM does not represent or warrant its accuracy, reliability or completeness, or accept any liability for any loss or damage (whether direct or indirect) arising out of the use of all or any part of this material. No representation or warranty should be made with regard to any computations, graphs, tables, diagrams or commentary in this material, which are provided for illustration/ reference purposes only. The views, opinions, estimates and strategies expressed in this material constitute our judgment based on current market conditions and are subject to change without notice. JPM assumes no duty to update any information in this material in the event that such information changes. Views, opinions, estimates and strategies expressed herein may differ from those expressed by other areas of JPM, views expressed for other purposes or in other contexts, and this material should not be regarded as a research report. Any projected results and risks are based solely on hypothetical examples cited, and actual results and risks will vary depending on specific circumstances. Forward-looking statements should not be considered as guarantees or predictions of future events.

Nothing in this document shall be construed as giving rise to any duty of care owed to, or advisory relationship with, you or any third party. Nothing in this document shall be regarded as an offer, solicitation, recommendation or advice (whether financial, accounting, legal, tax or other) given by J.P. Morgan and/or its officers or employees, irrespective of whether or not such communication was given at your request. J.P. Morgan and its affiliates and employees do not provide tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any financial transactions.

What could President Trump’s tariffs mean for the U.S. economy—and investors?

Published Apr 7, 2025

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Lessons from “Liberation Day”: A guide to tariffs

Rumble in the Rose Garden

April 2nd tariffs exceeded expectations

U.S. effective tariff rate, %

Drawdowns happen, and historically so have recoveries

Various S&P 500 drawdown events and forward returns, %

RISK CONSIDERATIONS

Important Information

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Lessons from “Liberation Day”: A guide to tariffs

Rumble in the Rose Garden

April 2nd tariffs exceeded expectations

U.S. effective tariff rate, %

Drawdowns happen, and historically so have recoveries

Various S&P 500 drawdown events and forward returns, %

RISK CONSIDERATIONS

Important Information

TAGS

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In this article

you may also like

At mid-year, alternatives shine in a volatile market

Experience the full possibility of your wealth

Navigating Washington's risks: Mar-a-Lago accord and tariffs

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