JP Morgan CEO says tariffs raise recession risk, must be resolved quickly
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The news: In his annual letter to shareholders published Monday, CEO of JP Morgan, Jamie Dimon, warned that the trade war waged by US President Donald Trump is boosting the likelihood of recession and will increase inflation.
The context: Chief of the world’s biggest bank, Jamie Dimon’s widely-read letter was published as global markets continued a selloff driven by Trump’s escalating trade war.
Describing the tariffs as one large additional straw on the camel’s back, Dimon said: “The quicker this issue is resolved, the better because some of the negative effects increase cumulatively over time and would be hard to reverse.”
Dimon’s letter dives into the impact of Trump’s trade war, reading: “Whatever you think of the legitimate reasons for the newly announced tariffs—and, of course, there are some—or the long-term effect, good or bad, there are likely to be important short-term effects.”
On the increased risk of recession on rising inflation, Dimon is “not so sure” that markets will continue to have a fairly soft landing, and warned these significant and somewhat unprecedented forces are keeping investors very cautious. Dimon said that inflationary outcomes on domestic prices will likely arise as input costs rise and demand increases on domestic products. Whether or not the “menu of tariffs” causes a recession remains in question, but it will slow down growth, he argued.
“I am hoping that after negotiations, the long-term effect will have some positive benefits for the United States. My most serious concern is how this will affect America’s long-term economic alliances.”
On trade more broadly, the CEO said that of the USD20 trillion ($33.11 trillion) in global trade seen annually, the US is only involved in USD2.5 trillion. Dimon said that the US lacks trade agreements with some of its closest allies (many of whom hold trade deals with China) and should be more actively seeking "free (and, of course, fair) trade agreements," particularly with strong allies like Australia, Japan, the United Kingdom and hopefully the European Union one day.
“We already trade with most nations on the planet – and, of course, we should always be trying to make it better and fairer for America. Deepening high-standard trade with key trading partners is good economics and great geopolitics.”
On China, Dimon said that the US should not fear China, but “we just need to get our act together,” and that comprehensive economic policy is critical to compete with China. “There is no more consequential relationship for the world, and this relationship will affect the whole Indo-Pacific region, especially our allies: Australia, Japan, the Philippines, South Korea and others.”
Dimon also referred to Australia’s superannuation sector, saying that the US could learn “valuable lessons” from how other countries balance adequate contributions, professional investing, simplified structures and tax efficiency. “Australia has an excellent retirement system in which employers effectively contribute 12% of ordinary pay into an account that is invested by professionals; the funds are available to the employee upon retirement.”
The source: Jamie Dimon letter to shareholders
