Jamie Dimon explained the hidden danger of Trump's trade war with China

JPMorgan CEO Jamie Dimon has some concerns about President Donald Trump's trade war with China.

On the same day Trump imposed a 10% tariff on $200 billion worth of Chinese goods — adding to the tariffs on $50 billion worth of goods that were already in place — Dimon warned that the problems with the "trade skirmish" are not limited to the direct cost increase from the duties.

During a Monday interview with CNBC, Dimon said that while the tariffs are a "tax on America," the real danger will come from companies' responses to the cost increases.

"Remember, people do other things," Dimon said. "They have other supply lines. But it's a $20 trillion economy. So that's a negative isn't that. It's confidence, consistency. If people start reducing investment, if people start moving to supply chains around, that we have seen already moving around the market a little bit."

Dimon's point is that while the direct effects of the tariffs — higher costs for businesses, higher prices for consumers — may produce a slight growth lag, the larger disruption will come from tariffs' second-order effects.

The uncertainty over trade policy is already becoming an undercurrent in business and consumer confidence measure — the most recent being the Business Roundtable CEO survey, a survey of 141 US CEOs that was released Monday.

The survey (Dimon is the chairman of the group) found that roughly two-thirds of executives believed the tariffs would be a moderate or significant drag on their companies' capital spending plans going forward.

"Current trade policies and uncertainty about future trade policies are having negative effects, especially on capital investment," Joshua Bolten, CEO of the Business Roundtable, said in a release. "Decreases in capital investment not only impact the operations of Business Roundtable companies, less spending on equipment and facilities also squeezes small- and medium-sized suppliers and the millions of Americans they employ."

In turn, the slip in confidence and uncertainty around trade policy could cause firms to delay investment or hiring. Or they could decide to move their supply chain to an area less affected by the tariffs. The most notable example of supply-chain shift was Harley Davidson, which announced that it would move some of its production overseas to avoid the European Union's retaliatory tariffs on American motorcycles.

As more and more businesses start to grapple with the tariffs, they too may decide to shift manufacturing out of the US to avoid the trade upheaval. A cascade of moves could present more of a problem for the US economy than the price increases.

While these changes are theoretical, Dimon said further escalation of the trade conflict could end up canceling out some of the other, more beneficial parts of Trump's economic policy.

"So we don't really think it is a great way to go about it," Dimon said. "It could easily offset some of the benefits that we've seen form regulatory reform and tax reform."

Jamie Dimon explained the hidden danger of Trump's trade war with China

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