JPMorgan Chase CEO Jamie Dimon said Monday in a letter to shareholders that President Donald Trump’s tariffs are likely to “increase inflation” on both foreign and domestic goods, and raised concerns over what their impact will be on America’s economic alliances.
“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,” Dimon wrote in his letter, which marked his first public comments on Trump’s tariffs.
“As for the short-term, we are likely to see inflationary outcomes, not only on imported goods but on domestic prices, and input costs rise and demand increases on domestic products. How this plays out on different products will partially depend on their substitutability and price elasticity. Whether or not the menu of tariffs causes a recession remains in question, but it will slow growth down,” he explained.
He went on to write that there “are many uncertainties surrounding the new tariff policy” including U.S. trading partners’ retaliatory plans, which could impact the economic outlook, adding that some of those negative effects will compound over time in difficult-to-reverse ways and thus should be resolved sooner.
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“The potential retaliatory actions, including on services, by other countries, the effect on confidence, the impact on investments and capital flows, the effect on corporate profits and the possible effect on the U.S. dollar,” he 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. In the short run, I see this as one large additional straw on the camel’s back.”
“I am hoping that after negotiations, the long-term effect will have some positive benefits for the United States,” Dimon said. “My most serious concern is how this will affect America’s long-term economic alliances.”
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Dimon wrote that the U.S. “should remember that other nations have choices, both in the short term and in the long term, and they will make these choices in their own self-interest based on economics, security and reliability.”
“The United States lacks trade agreements with some of its closest allies, many of whom have signed trade deals with China. We should be more actively seeking free (and, of course, fair) trade agreements, particularly with strong allies like Australia, Japan, the United Kingdom and – we hope one day – the European Union,” Dimon wrote. “These can be done in a way that is clearly beneficial to both sides.”
Dimon’s letter also discussed trade deficits and what they mean for the economy. The Trump administration touted plans for “reciprocal tariffs” that were actually computed based on the size of the U.S. trade deficit with various trading partners, rather than the actual level of tariffs or non-tariff trade barriers.
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He said that trade deficits “are not necessarily good or bad” and observed that, “Even if our country had no net trade deficit, it would likely be running deficits with some countries and surpluses with others.”
“Our trade deficit over the last 20 years has totaled over $12 trillion, and this is probably too large. The other side to the trade deficit is an investment surplus, which has resulted over the years in foreign investors owning $30 trillion of U.S. securities, while U.S. investors own only $16 trillion of foreign securities,” Dimon wrote.
“In 2005, these numbers were $6.3 trillion and $4.3 trillion, respectively. You can see that, over time, foreign investors have come to own an increasing share of the United States,” he adding, noting that China’s holdings of U.S. assets are about $1.5 trillion, about half of which is U.S. Treasury securities.
Dimon said that the federal government’s large budget deficits also contribute to the trade deficit, saying it’s “perfectly reasonable to focus on our ‘twin’ deficits: our $2 trillion fiscal deficit and our $1 trillion trade deficit.”
“While the numbers in the above paragraph highlight the attractiveness of the American economy, they also reveal certain underlying risks: If America, for whatever reason, becomes a less-attractive investment destination, the U.S. dollar and the economy could suffer if foreigners sold their U.S. assets,” Dimon wrote.
