Trump TARIFFS one year later: Economic drag or unexpected boost?

Key Concepts

• Liberation Day Tariffs: Trade policies implemented by the Trump administration.
• Strait of Hormuz: A critical maritime chokepoint for global oil transit.
• Demand Destruction: A sustained decrease in market demand for a commodity, often due to high prices or supply shocks.
• VIX (Volatility Index): A measure of market expectations for near-term volatility conveyed by S&P 500 stock index option prices.
• GDP Growth: The primary indicator of economic health, measuring the value of goods and services produced.

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Economic Impact of "Liberation Day" Tariffs

Anthony Chan, former Chief Economist for JPMorgan Chase, evaluates the economic performance following the implementation of the "Liberation Day" tariffs.

• Performance Data: Contrary to expectations of a "profound drag," the U.S. economy remained resilient. Real GDP growth in 2025 was recorded at 2.1%, down from 2.8% the previous year.
• Conclusion: The tariffs did not devastate the U.S. or global economies; rather, they resulted in a marginal deceleration of economic growth.

The Oil Supply Crisis and Geopolitical Instability

The discussion shifts to the rise in gasoline prices, which President Trump attributes to Iranian aggression against commercial oil tankers.

• Supply Shortfall: The closure of the Strait of Hormuz has created a massive supply gap of approximately 20 million barrels of oil and natural gas equivalent per day.
• Mitigation Efforts: While Saudi Arabia has increased production by 7 million barrels per day, a significant deficit remains. Even with improved shipping throughput, Chan estimates a persistent shortfall of 2 to 4 million barrels per day.
• Economic Correlation: Chan references IMF models indicating that for every 1 million barrels per day shortfall, there is a measurable decline in both global and U.S. economic growth.
• Historical Precedent: Chan cites the 2020 crisis, where a demand destruction of 9 million barrels per day led to a global economic contraction of -3.1%.

Market Volatility Analysis

Chan provides a comparative analysis of how different crises affect financial markets, specifically the S&P 500 and the VIX.

• Tariff-Induced Volatility: Following "Liberation Day," the VIX showed increased volatility, but this was short-lived.
• Geopolitical-Induced Volatility: In the current oil crisis involving multiple nations, the VIX does not spike as high as it does during trade-related shocks. However, the volatility "lingers for a long time," creating sustained uncertainty for the S&P 500.

Synthesis and Takeaways

The primary takeaway is that while trade tariffs had a manageable, slowing effect on the U.S. economy, the current geopolitical situation regarding oil supply poses a more persistent threat. The structural shortfall in oil supply, exacerbated by the closure of the Strait of Hormuz, creates a long-term drag on economic growth and introduces a "lingering" volatility into equity markets that differs significantly from the temporary shocks caused by trade policy changes. The economic outlook remains tethered to the reopening of the Strait of Hormuz and the stabilization of global energy supply chains.