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JPMorgan believes a proposed round of tariffs under a possible second Donald Trump presidency could have a bigger impact on consumer prices than they did during the Republican leader's first term.
Trump's imposition of tariffs, which served As president of the United States from 2017 to 2021, it was one of the most important policies of his administration. His government had applied tariffs on thousands of products valued at around $380 billion in 2018 and 2019.
Trump has promised similar policies if re-elected: a 60% tariff on all Chinese imports and a universal 10% tariff on all imports from the rest of the world.
The Republican presidential candidate sparred with incumbent President Joe Biden on Thursday over the issue in the first televised debate hosted by CNN. Trump claimed his tariff proposals would not raise consumer prices. Biden countered, saying they would cost the average American $2,500 a year or more.
“Trump 1.0 tariffs increased the trade-weighted average tariff rate from about 1.5% to just over 3%, generating an additional $60 billion in customs revenue. If all of this were passed on to consumers, there would be increased the consumer price basket by about 0.3%,” JPMorgan's Michael Feroli said in a research note on Friday.
“The evidence from that period suggests that there was not a complete pass-through to consumer prices. In other words, retailers and other businesses bore some of the higher tariffs. On the other hand, there is also evidence that domestic producers used some of increased market power to impose higher prices. Therefore, we believe that 0.3% is a reasonable estimate of the effect of those tariffs on the price level,” the analyst said.
“Following similar reasoning, a 60% tariff on all Chinese imports (roughly a 48 percentage point increase) would statically raise just over $200 billion, raising the price level by 1.1%. A similar calculation for A universal tariff of 10% yields $280 billion, or about 1.5% of the price level,” Feroli added.
The analyst also noted that tariff announcements during Trump's presidency had “large, adverse effects on the stock market.”
“This disconnect may reflect that business models do not capture intangibles such as political uncertainty. In any case, significant uncertainty concerns estimates of the impact on growth,” Feroli said.
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- God Bless America ETF (YALL)
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