Policy progress

Tariffs in effect:

• 10% universal tariff on all other imports not listed below
• 30% tariffs on China (90-day pause on 145% rate); 10% tariffs on the U.S. from 125%
• 25% on imports from Canada and Mexico (non-USMCA-compliant goods and non-U.S. content for autos and auto parts), 10% on non-USMCA potash, Canadian energy
• 25% on steel and aluminum (not stacked with other tariffs for certain automakers)
• 25% on autos and auto parts (2-year exemption for a portion of imported component costs)
• Elimination of the de minimis exemption
• Certain products containing semiconductors (smartphones, etc.) are exempt from all tariffs, Chinese technology is still subject to the 20% “fentanyl tariff”

Trade frameworks announced:

• UK – 10% tariff rate, 10% rate on first 100,000 autos and 25% thereafter, no tariffs on steel and aluminum

Potential tariffs:

• Copper, pharmaceuticals, semiconductors, lumber, bullion, critical minerals, energy

Tariffs announced April 2^nd and paused for 90 days:

•  Higher tariffs most countries, including:

−32% on Taiwan

−26% on India

− 25% on South Korea

−24% on Japan

−20% on European Union

−10% on the UK

Goals of the tariffs include:

• Lowering trade deficit
• Raising government revenue
• Encouraging foreign investment in the U.S. and job creation
• Combatting perceived unfair practices
• Addressing domestic concerns with trading partners: drug trafficking, immigration, auto imports, defense

Economic implications

• The short-term economic impacts of tariffs tend to be stagflationary. Some of the one-time increase in tariffs may hit U.S. businesses’ bottom line, while some may be passed on to the end-consumer, raising prices. Important business decisions (investment and hiring) may be postponed or canceled, and consumers may pull back on bigger purchases. 1Q growth was already looking soft and further softening in 2Q will depend on the duration of tariffs.
•  Odds favor a mild recession this year. 

Investment implications

• The extent to which global companies and economies are hit will depend on their policy responses and the external vs. domestic focus of specific companies. Large multinationals could face headwinds, particularly in sectors with the highest share of foreign revenue, such as technology and materials. 
• Uncertainty has fomented market volatility, with the markets already digesting a double-digit correction. In 2018, a tit-for-tat trade war weighed on equity multiples despite solid earnings across most major global equity markets, producing negative returns.
•  “Safe haven” currencies like the Japanese Yen, Swiss Franc, and even the Euro can strengthen further, while some EM Asia countries (like China) may decide to devalue their currencies. Initial expectations were for a stronger U.S. dollar, but instead the dollar has weakened since Inauguration Day.

Average tariff rate on U.S. goods imports for consumption

Duties collected / value of total goods imports for consumption

Source: Goldman Sachs Investment Research, United States International Trade Commission, J.P. Morgan Asset Management. For illustrative purposes only. Estimates about which goods are USMCA compliant come from Goldman Sachs Investment Research. Imports for consumption: goods brought into a country for direct use or sale in the domestic market. The estimate does not consider non-tariff barriers, such as value-added taxes. Figures are based on 2024 import levels and assume no change in demand due to tariff increases. Guide to the Markets – U.S. Data are as of April 24, 2025.

Policy progress 

The rise in bond yields throughout 4Q24 and into 2025 likely reflects some degree of concern about the unbalanced state of U.S. federal finances. The deficit as a share of GDP sits at 6.4%, nearly double the 50-year average. Debt to GDP has climbed to nearly 100%. The only avenues to improve federal finances are to cut spending or to raise more revenue.

To that end, the Administration established the Department of Government Efficiency (DOGE) “to dismantle government bureaucracy, slash excess regulations, cut wasteful spending, and restructure federal agencies.” DOGE’s original goal was to cut $2 trillion in spending immediately, although that has since been curtailed to $1 trillion. Currently, DOGE has cut $160 billion in spending. However, looking underneath the $7 trillion dollar budget for 2025, there are fewer areas to trim than one might expect. Net interest payments must be made. Although social spending programs like Social Security, Medicare, and Medicaid were highlighted as areas in need of reform, dramatic cuts would be deeply unpopular. Removing mandatory spending leaves about 25% of the budget, half of which includes defense spending. Finding efficiencies could be challenging in such a short time frame, although feasible over a longer period.

The other option is to raise more revenue. Tariffs have been floated as one mechanism to do so. However, tariffs only account for $80 billion in revenue currently, and while prior to the 1930s that was not the case, if tariffs became a significant revenue source again it would come at the cost of growth and inflation. Income taxes are the largest source of revenue, but the extension of the Tax Cuts and Jobs Act will only limit that.

House Ways and Means Committee released its proposal for a reconciliation bill with a price tag of $4.9 trillion over the next decade. This includes four years of tax cuts and ten years of spending cuts. In all likelihood, those tax cuts will eventually be extended further after four years, increasing the total cost of the package over time and raising the deficit further. The House aims to pass a revised bill by Memorial Day.

It also includes a provision to increase the debt limit by $4 trillion. The current “X” date, or the date when the Treasury will have exhausted its extraordinary measures to fund the government in excess of the debt limit, is estimated to be sometime around August, incentivizing Congress to ensure the final version of this bill reaches the President’s desk in July.

Economic implications

• Excessive deficits and debt could slow economic growth and push up inflation.

Investment implications

• Treasury yields could rise further as investors demand more compensation for holding U.S. government debt, which could be perceived to carry more risk given the state of federal finances. 

The 2025 federal budget

USD Trillions

Federal deficit and net interest outlays

% of GDP, 1973-2035, CBO Baseline Forecast

Source: BEA, CBO, Treasury Department, J.P. Morgan Asset Management. Estimates are from the Congressional Budget Office (CBO) January 2025 An Update to the Budget Outlook: 2025 to 2035. “Other” spending includes, but is not limited to, health insurance subsidies, income security and federal civilian and military retirement. Years shown are fiscal years. *Adjusted by JPMAM to include estimates from the CBO March 2025 report “Projections of Deficits and Debt Under Alternative Scenarios for the Budget and Interest Rates” on the extension of TCJA provisions. Guide to the Markets – U.S. Data are as of April 24, 2025.

Policy progress

House Ways and Means Committee released some details on its proposed tax changes, which include:

• Full extension of the 2017 Tax Cuts and Jobs Act (TCJA) cuts that were set to expire at the end of 2025.
• Raise $10,000 cap on SALT deduction to $30,000
• Elimination of income taxes on tips and overtime
• Increases in the standard deduction, child tax credit, a $4,000 bonus deduction for senior citizens, the ability to deduct interest on loans on domestically assembled vehicles
• Endowment taxes would rise from 1.4% to 21% for largest endowments
• Eliminating tax credits for electric vehicles, credits for clean energy home investments, and sunset tax credits for certain types of renewable energy production

These additional provisions are effective for calendar years 2025- 2028 along with immediate adjustments to withholding tables for the tips and overtime provisions. The total price tag is estimated to be $4.9 trillion over ten years. Although tax cuts are supposed to last only four years and would be financed by spending cuts over ten years, it is likely at the end of four years tax cuts would be extended, further expanding the deficit.

The House aims to pass the bill by Memorial Day, although it is likely to go through revisions. 

Economic implications

• Growth: Real GDP would be largely unaffected in 2025, but powerful fiscal stimulus from tax cuts kicking in at the start of 2026 could offset some of the weakness in growth. 

Investment implications

• A corporate tax cut for domestic producers could mimic the now defunct Section 199 domestic production activities deduction, in which manufacturing and information technology benefitted the most. Finance, health care, education and other services received little benefit.
• Corporate profits of domestic producers could experience a tailwind to margins. 145 companies in the S&P 500 (representing 18% of market cap and 23% of earnings) have effective tax rates greater than 15% and greater than 80% of revenues derived domestically. Stripping out the 51 companies in traditionally service sectors, roughly under one-fifth of the S&P 500 could benefit. More mid and small cap companies, which tend to be more domestically oriented, may qualify for this tax cut. 

S&P 500 sector effective tax rates

Annual tax rates, average from 2018 - 2024

Source: FactSet, Standard & Poor’s, J.P. Morgan Asset Management. Tax rates are effective federal, state and local rates. Real estate effective tax rate average from 2018 to 2023 is a bottoms-up calculation due to data availability limitations. Guide to the Markets – U.S. Data are as of April 24, 2025.

Policy progress

The Biden administration passed nearly 80% more financially significant rules (estimated to have $100 million or more impact to the economy; threshold raised to $200 million in 2023) throughout its term than the Trump administration did during its first term, according to George Washington University. The Trump administration is likely to attempt meaningful deregulation this time around. During his first term, the President directed agencies to eliminate two rules for each new one created. He has proposed to increase that to eliminate 10 rules for each new one.

Thus far deregulation has not been the primary focus, although key targets of potential deregulation include:

• Finance: Post-financial crisis era regulations, Basel III and crypto assets could face some deregulation.
• Energy: The administration will likely remove restrictions on leases and permitting for oil and gas drilling. It has also proposed to rescind unspent funds from the Inflation Reduction Act, remove subsidies on renewables and electric vehicles, and roll back environmental protections.
• Health care: A long-standing goal of the President was the repeal the Affordable Care Act.
• Technology: Technology may continue to come under intense scrutiny, but focus may shift towards issues like free speech and competitiveness rather than wholesale breakups of tech companies. Influential tech leaders may emphasize an open environment for AI development that enables the U.S. to maintain its competitive edge. The Administration could expand the semiconductor export restrictions introduced during the Biden administration and increase incentives for domestic chip manufacturing.

The realities of deregulation, however, may be more sobering. It is easier not to add new regulation than to eliminate it. Not only does proposed deregulation need to go through a formal review process but it is also subject to judicial review, which has a mixed success rate.

Economic implications

• Productivity: Deregulation should boost productivity and support growth; however, any such gains are very hard to estimate.
• There could be long-term impacts to environmental and climate sustainability, as well as consumer protections.

Investment implications

• Mega cap technology companies may continue to face anti-trust litigation, although the strategic importance of many of these businesses may also protect them and limit the scope of legal action, somewhat diminishing the regulatory headwind.
• Financials stand to benefit from a rollback of post-financial crisis era regulations and Basel III.
• Energy could also benefit, although with oil production already at high capacity, this may not result in a meaningful increase in oil supply in the short run. On the other hand, renewables and EV subsidies enacted in the Inflation Reduction Act could be at risk.
• Thus far, markets have not rewarded health care for any prospects of regulatory regime change, and the Administration’s cabinet appointee has not been well-received by the markets at this stage.
• Crypto guardrails could diminish through less SEC enforcement and a relaxed regulatory framework for digital assets.
• Streamlined regulation and greater clarity could revive IPOs and M&A, creating much needed exit activity in private equity, and supporting lending and financing activity in private credit. 

Source: George Washington University's Regulatory Studies Center, Office of the Federal Register for Biden administration, Office of Information and Regulatory Affairs for all prior administrations, J.P. Morgan Asset Management. Data are as of September 6, 2024. 

Economically significant rules published by administration in first year

Cumulative number of rules

Source: George Washington University's Regulatory Studies Center, Office of the Federal Register for Biden administration, Office of Information and Regulatory Affairs for all prior administrations, J.P. Morgan Asset Management. Data are as of September 6, 2024. 

Policy progress

Immigration efforts have prioritized increasing border security, deporting undocumented immigrants with criminal convictions and final deportation orders, and slowing or restricting legal avenues to immigrate.

The latest data show:

• Fewer than 12,000 encounters on the southern border in both February and March, down very sharply from roughly 100,000 per month in 4Q24 and 250,000 per month in 4Q23. 
• Deportations are running at similar pace to the prior administration at less than 1,000 per day.
• The data do not show a downturn in immigrant visas.

Economic implications

• Jobs: Lower labor force growth due to less immigration could limit the labor supply. Wages could face upward pressure as native born workers’ median wages are higher than foreign born workers.
• Growth: Over time, economic growth could be limited by constrained labor force growth.

Investment implications

• Companies could continue struggle to find enough qualified workers, a longstanding challenge.
• Higher wages could weigh on profit margins.

Labor force growth, native and immigrant contribution

Year-over-year difference, end of year, aged 16+, millions

Median weekly wages

2023

Source: BLS, FactSet, J.P. Morgan Asset Management. Labor force data are sourced from the Current Population Survey, also known as the household survey, conducted by the BLS. This survey does not ask respondents about immigration status and may include undocumented workers, although it likely undercounts the undocumented population. Data are as of March 13, 2025. 

Policy progress

President Trump signed a slew of executive orders to boost U.S. energy production and lower energy prices. His national energy emergency declaration will give the president broad authority to remove environmental restrictions and expedite approvals for energy infrastructure projects. In addition, notable executive orders were aimed at deregulating oil drilling in the Arctic and lifting the hold on new LNG export permit applications to help alleviate a backlog of new LNG projects, including large ones in Texas and Louisiana that have been on pause while the Biden Administration reviewed their environmental and economic impacts.

During his inaugural address, President Trump also reiterated his intentions to refill the Strategic Petroleum Reserve. The Biden Administration released 180 million barrels of crude oil from the Strategic Petroleum Reserve (SPR) to stabilize oil prices during the Russia/Ukraine war, bringing the SPR to 40-year lows in June 2023. President Trump has now pledged to refill the SPR from its current inventory of 395 million barrels to the maximum capacity of 714 million barrels; however, he will first need $24bn in funds authorized from Congress to do this.

Economic implications

Despite these changes, energy supply may not see a marked increase:

• The U.S. is already the largest producer of crude oil in the world, pumping out roughly 13.4 million barrels per day, per the EIA.
• The difference between U.S. primary energy production and consumption have reached the highest levels in history.
• Weather, geography, specialized equipment requirements and the cost to extract oil in the Arctic has historically been costly and financially unviable for many oil and gas companies.
• OPEC+ already has planned 2025 and 2026 production increases, and the world’s oil supply is expected to continue increasing in the coming years.
• The U.S. was already expected to significantly increase its world-leading LNG production in 2025 and 2026 from 90M tonnes per annum to over 140M tonnes per annum due to previously approved LNG projects to supply Europe and Asia with LNG as the regions continue cope with supply issues from the Russia/Ukraine war. 

Investment implications

• Energy companies may not want to significantly ramp up supply because it could weigh on oil prices and reduce profitability. U.S. oil exploration and production firms need oil prices above $64 on average to profitably drill a new well, leaving little room for current prices to decline.

U.S. primary energy production and consumption deficit/surplus

Diff. between production vs. consumption, quadrillion British thermal units (1952-2024*)

Source: EIA, J.P. Morgan Asset Management. British thermal unit is a measure of the heat content of fuels or energy sources. *2024 energy and consumption data are forecasted by J.P. Morgan Asset Management.

Political opinions are best expressed at the polls, not in a portfolio. One cardinal rule investors ought to follow: Don’t let how you feel about politics overrule how you think about investing.

The chart below shows a survey from the Pew Research Center asking Americans how they feel about economic conditions. The results show that Republicans often feel better about the economy under a Republican president, while similarly Democrats often feel better about the economy under a Democratic president. Investors often make portfolio decisions based on their economic outlook.

Yet, average annual returns on the S&P 500 during the Obama administration of 16.3% and during the Trump administration of 16.0% were almost identical and higher than the average return over the last 30 years of 10.9%. It is likely the macro conditions, like ultra-low interest rates enjoyed during both Obama and Trump administrations, were a more influential driver of above-average returns during those periods, rather than the policy prescriptions each president espoused.

Consumer confidence by political affiliation

Percentage of Republicans and Democrats who rate national economic conditions as excellent or good

Source: Pew Research Center, J.P. Morgan Asset Management. The survey was last conducted in September 2024. Pew Research Center asks the question: “Thinking about the nation’s economy, How would you rate economic conditions in this country today… as excellent, good, only fair, or poor?” S&P 500 returns are average annualized total returns between presidential inauguration dates and are updated monthly.

Guide to the Markets – U.S. Data are as of  April 24, 2025.