From feared 26% to actual 10%: JPMorgan economist explains why US tariff shock hasn't arrived yet

Actual tariff implementation in the United States has turned out to be far less potent than first feared, according to Sajjid Chinoy, Chief India Economist and Head of Asia Economics at JPMorgan. Speaking to Govindraj Ethiraj on The Core, Chinoy said the doomsday predictions made earlier in the year had not materialised because both the tariff rollout and the global economic backdrop shifted in unexpected ways.

Calling the last few months "quite a puzzle," Chinoy said, "On liberation day, all economists said Armageddon is coming and here we are three quarters later with very strong growth." He added that those early forecasts assumed "all else being equal, and all else has not been equal."

Chinoy pointed to two main factors behind the stronger-than-expected global growth. The first was the actual tariff trajectory. "On liberation day, the US President said effective tariffs will be close to 26% which was a ginormous increase from the 3% in 2024. If you actually see what's happened several months later, the effective tariff is more like 17%," he said, noting that multiple exemptions - including electronics, semiconductors and pharmaceuticals - pulled down the real rise. "So, the effective tariff is about 10 percentage points lower."

He, however, said that this is the calculated tariff that economists calculate on a spreadsheet. "The actual tariff in the US today is about 10%. When you look at the revenues you collect from imports (tariff revenues) and you divide that by the number of imports, it's about 10%. So the move has been far less sharp. It's gone from 3 to 10, not from 3 to 25 or 3 to 17."

Chinoy said global trade flows were also adjusting in real time. "Water finds its own level," he noted, pointing to exports from China being rerouted through Vietnam and Thailand, importers frontloading shipments, and companies shifting sourcing to lower-tariff countries. 

These transitions, he said, would stretch the timeline: "It's going to take much longer for us to reach higher tariff rates. It won't happen in three quarters. It may take six quarters." He said the importers were absorbing much of the hit - which kept consumer prices from rising as sharply as expected.

The second factor, Chinoy said, was a surge in artificial intelligence-driven investment. "You've seen this huge big AI boom that no one expected. Massive investments not just in the US but you're seeing the equivalent of that in very strong exports in Asia," he said, citing Taiwan, Singapore, Korea and Malaysia as key beneficiaries. He added, "If you take out AI investments from the US earlier in the year... US growth would be less than 1%."

Chinoy cautioned that the outlook remained delicate. "It's too early to claim victory. Yes, headline growth is strong, but the labor market in the US has weakened materially and there's been a data blackout in the last couple of months," he said. He added that, "anecdotally, firings and layoffs have picked up in October and November," placing the labour market in "a very precarious situation."

The top economist warned that strong growth could still coexist with rising uncertainty: "You can have a situation where growth is strong, but because it's all AI-driven, it's creating no jobs, uncertainty is high, the tariffs will slowly begin to bite as inflation goes up. So, we're still at a point where, this could break either way."