The U.S. stock market’s performance this year, along with the fees that traders have racked up as investors moved money around to safeguard their wealth, show how much President Trump’s escalating trade disputes worry Wall Street’s clients.
But worry is the extent of their response so far, according to executives at JPMorgan Chase and Citigroup, two of the largest U.S. lenders. Investment banking revenue climbed at both firms during the three months through June as corporate clients continued to pursue mergers and sold new shares to investors.
The trade rhetoric “certainly introduced volatility, but we haven’t yet really started to see any significant changes in behavior,” Citi Chief Executive Officer Michael Corbat told investors on an earnings call Friday. “The markets have fears of what that rhetoric leads to, but at this point, we’re not seeing it coming through the numbers.”
Indeed, stock-underwriting fees gained 49 percent to $570 million at JPMorgan and 8 percent to $335 million at Citi, and each posted double-digit gains in merger-advisory revenue in second-quarter financial statements.
The numbers indicate the worst of the fallout is yet to come from double-digit metals tariffs, 25 percent levies imposed on $34 billion of Chinese imports and threatened on $416 billion more and possible double-digit duties on automobiles. It might still be averted if White House policies lead to the economically beneficial international deals Trump has promised.
Economists, business leaders and even lawmakers from the president’s own party have warned, however, that he risks starting a trade war that could undermine the benefits of last year’s tax cuts and tip the world into a recession.
Major U.S. stock indexes have reacted to those concerns, pulling back from January highs and dipping whenever the president threatens a new tariff. The volatility boosted trading businesses this spring and summer: Stock-trading revenue climbed 24 percent to $1.96 billion at JPMorgan and 19 percent to $864 million at Citi.
Trade-war worry is “on people’s minds in terms of risks but it’s not so much, right now, driving actual business decisions and activity,” said Marianne Lake, chief financial officer at JPMorgan.
“As we look across what you can see in the capital markets results, people are still doing the deals that they need to do,” she added. “So as we sit here today, it’s more of a risk than it is an actual influencer, but it could easily become one.”
Jonathan Gerspach, the CFO at Citi, concurred. “It certainly has had some impact on the overall feeling in the market that’s created some uncertainty, so I do think that it probably had some impact on people making decisions. But from an overall business point of view, we really haven’t seen that impact as yet.”
The visibility of the effects reflects, to a degree, the large, multinational corporations that both banks count as clients. Small business owners have already seen supply costs jump, and some have been forced to lay off workers.
Indeed, senators including Claire McCaskill, a Missouri Democrat, peppered Commerce Secretary Wilbur Ross, who’s in charge of implementing some of the tariffs, with such anecdotes at a Senate hearing in June.
Since then, an array of Japanese and German automakers, along with industry trade groups and governments of U.S. allies have urged Trump to back away from tariffs that would disrupt their supply chains, and dramatically increase prices for cars — the second-most expensive purchase most Americans make.
The president has largely shrugged off those concerns, however, and he continues to maintain a tough stance toward China. This week, he instructed the Commerce Department to put together a list of $200 billion Chinese imports for potential tariffs, rebuffing speculation that he might be reluctant to take action strong enough to hurt U.S. consumers.
While the first $50 billion in Chinese imports to be affected were carefully chosen to avoid hurting individuals, the larger amounts under consideration now would make doing that again an impossibility.
“Neither country is likely to back down to the other unless there is some outside force that convinces either to refrain from further escalation,” Stephen Juneau, an economist at Bank of America, said in a report. “The first signs of pain would likely come in the form of a plunge in U.S. equity prices or a sharp drop in President Trump’s job approval.”
The next indicator might be a decline in business and consumer confidence that leads to delays in significant investment by both, but these “early warning posts have yet to send the necessary signal,” he noted. “While businesses continue to cite that tariffs are creating uncertainty and higher costs in their industries, confidence measures continue to come in at robust levels.”
