J.P. Morgan Wealth Management is providing advisors with a roadmap for navigating the next phase of President Trump’s escalating trade war. In its latest research, the firm outlines its base-case scenario for how tariffs are likely to evolve and identifies key portfolio strategies for investors preparing for a more volatile economic backdrop.
According to the firm's global investment strategy team, the effective U.S. tariff rate is poised to surge from roughly 2% at the start of the year to between 10% and 20% under current policy assumptions.
While this marks a substantial increase in import duties, J.P. Morgan emphasizes that the expected outcome still falls within the range of Wall Street’s projections prior to the president’s widely publicized “Liberation Day” policy announcement. The base case anticipates that negotiations between the U.S. and key trade partners will result in selective bilateral deals, but not before tariff levels rise meaningfully across broad segments of global trade.
The firm acknowledges that the protectionist posture has been framed by the administration as a high-stakes bargaining tactic—one designed to compel concessions from U.S. trading partners on key issues like intellectual property, industrial subsidies, and market access. However, even with partial success on those fronts, J.P. Morgan sees the economic consequences mounting.
The firm’s economists forecast a slowdown in U.S. GDP growth, alongside rising unemployment and inflationary pressures. While the base case stops short of predicting a technical recession, it does suggest the economy will experience sustained stress.
In light of these challenges, J.P. Morgan is advising clients—particularly high-net-worth investors and those managing diversified portfolios—to consider two tactical responses: structured notes and hedge fund allocations.
Structured notes, the firm argues, can offer both downside protection and yield generation in an environment where equity volatility is elevated. These instruments, often tied to indices or baskets of stocks, allow investors to collect options premiums while capping some upside potential.
The result is a more defensive equity posture that can buffer portfolios from short-term swings, while still maintaining exposure to long-term appreciation potential. According to the research team, this strategy may appeal particularly to income-oriented investors who are seeking risk-mitigated participation in markets undergoing dislocation.
For more sophisticated portfolios, J.P. Morgan sees renewed opportunity in hedge fund strategies—especially those focused on relative value, global macro, and event-driven themes.
The firm believes that increased volatility and price dispersion across asset classes will improve the opportunity set for skilled managers to exploit mispricings. This comes after a multi-year stretch in which hedge funds, particularly those benchmarked against equity markets, struggled to generate uncorrelated alpha.
“Periods of elevated volatility often reveal inefficiencies in pricing,” the report notes. “Managers with flexible mandates and access to global opportunities are likely to find fertile ground as correlations break down and market narratives shift.”
In addition to their potential for opportunistic gains, hedge funds are also being framed as a risk management tool. The firm notes that the broader trade environment could be punctuated by periodic shocks—including retaliatory measures, political brinkmanship, and supply chain disruptions—that undermine investor confidence.
Allocations to alternative strategies, especially those that are not tied to traditional equity or fixed income beta, can provide ballast during turbulent market stretches.
J.P. Morgan’s position is not one of panic, but of strategic recalibration. Advisors should expect a prolonged period of transition as the new trade regime reshapes global commerce, capital flows, and inflation dynamics.
The firm emphasizes that while markets may intermittently rally on news of trade negotiations or policy pauses, these rebounds should not be mistaken for resolution. The broader shift away from multilateralism and toward more fragmented trade relationships has structural implications that require a durable shift in portfolio construction.
“Clients should not assume that the U.S. will revert to the pre-2024 trade regime,” the firm’s analysts wrote. “Instead, we are likely entering a multi-year period of elevated trade frictions, during which tariff rates and non-tariff barriers become a more persistent part of the investment calculus.”
J.P. Morgan also cautions against leaning too heavily into traditional defensive sectors as a blanket solution. While staples, utilities, and other low-beta equities may offer stability, their valuations are already stretched in some cases. Moreover, tariffs could distort input costs and consumer pricing in ways that ripple across all sectors, even those historically seen as insulated from global supply chain risks.
Advisors should instead focus on flexibility, liquidity, and selectivity. For taxable investors, tax-loss harvesting and rebalancing may provide opportunities to enhance after-tax returns in choppy markets. For retirees and income-seekers, laddered fixed income strategies may regain appeal, particularly if inflation drives up short-term rates and steepens the yield curve. And for growth-oriented portfolios, selective exposure to companies with resilient pricing power and domestic supply chains may offer some insulation from external shocks.
J.P. Morgan’s guidance arrives at a moment when many wealth advisors are fielding questions from clients who are concerned not only about trade but about the broader direction of U.S. economic policy.
The evolving tariff landscape intersects with monetary policy, fiscal stimulus, labor market conditions, and geopolitical strategy—all of which influence portfolio outcomes in complex ways. Advisors must therefore take a holistic approach to planning, integrating asset allocation with estate, tax, and liquidity planning considerations.
In conclusion, J.P. Morgan’s research reflects a nuanced but cautionary outlook on the current trade trajectory. While the firm does not expect the worst-case scenario of a global trade breakdown, it does see meaningful economic fallout as the U.S. continues to reshape its approach to international commerce.
For advisors, the message is clear: prepare portfolios for volatility, reallocate with precision, and stay attuned to the broader macro signals that may emerge as the new trade framework evolves. The old playbook may no longer apply—but for those who adapt quickly, new opportunities will emerge.
Photo by Taras Zaluzhnyi on Unsplash
