Dimon: Trump’s complaints about China are ‘legitimate’
JPMorgan Chase CEO Jamie Dimon says it is “not unreasonable” for the U.S. to push for fairer trade terms with China, lauds the Trump administration for reforming the tax code and warns that markets may be underestimating the risk of a quicker pace of interest rate hikes from the Federal Reserve.
Dimon, the most influential CEO in banking and one of the most closely followed U.S. executives, offered his candid views on markets, trade tensions and government policy in his annual letter to shareholders released Thursday.
Weighing in on the recent trade fight between China and the U.S., Dimon said the U.S. has “entered a time of uncertainty over global trade.” But he stressed that the “proper resolution of serious trade issues is good for the U.S. and for the rest of the world.”
President Trump’s complaints about China, Dimon argues, are “legitimate,” noting that China is now the world’s second-largest economy and home to 20% of Fortune 500 companies, yet it “still considers itself a ‘ developing nation’ that should not be subject to the same trade rules as the U.S. and other ‘developed’ countries.”
Still, while Dimon says it’s “not unreasonable” for the U.S. to push for more equal trade terms with China and believes both countries want to resolve their issues, he says there “is always a chance that miscalculations on the part of the various actors could lead to negative outcomes.”
Other key topics addressed by Dimon: One risk facing financial markets is if the economy gains enough speed to cause inflation and wages to rise more than anticipated, as that could lead the nation’s central bank to hike interest rates more aggressively.
“We have to deal with the possibility that at one point, the Federal Reserve and other central banks may have to take more drastic action than they currently anticipate,” Dimon wrote. “While in the past, interest rates have been lower and for longer than people expected, they may go higher and faster than people expect.” That rate hike scenario could catch investors off-guard, he warns, and cause markets to “get more volatile.”
Dimon also worries about the huge pile of money ($9 trillion by his count) now invested in “passive” funds, such as index funds and ETFs that track popular stock indexes such as the Standard & Poor’s 500 index. These funds, he notes, are very easy for investors to get out. “It is reasonable to worry about what happens if these funds went into large liquidation,” Dimon said.
Potential hack attacks against banks, the financial system and other key U.S. infrastructure also ranks high on his list of risks. “I cannot overemphasize the importance of cybersecurity in America,” Dimon wrote. “This is a critical issue, not just for financial companies but also for utilities, technology companies, electrical grids and others. It is an arms race, and we need to do whatever we can to protect the United States of America.”
Dimon also says the new tax cut law and Trump’s push to pare back regulations that were hurting companies’ growth are what was needed to unleash the potential of the economy.