Goldman Sachs Group Inc. has raised concerns over the potential ramifications of President Donald Trump’s proposed tariff escalations on Chinese imports.
The renowned financial institution’s analysis underscores the potential for severe economic strain and heightened inflationary pressures should Trump follow through on his tariff pledges.
According to Goldman Sachs analysts, every percentage point increase in the effective tariff rate could exact a significant toll on the US economy and could potentially reduce growth by as much as 0.15%.
This projection is based on the assumption of retaliatory measures from China, a move that would further exacerbate the economic fallout.
The implications extend beyond mere economic growth. Goldman Sachs predicts that such tariff hikes could push inflation upwards, with core consumer prices expected to rise by just over 0.1%.
This surge in inflation would stem from firms passing on the increased cost of imports to consumers, coupled with opportunistic price hikes by domestic producers.
Trump’s tenure in the White House witnessed the imposition of tariffs of up to 25% on over $300 billion worth of Chinese imports, sparking retaliatory actions from Beijing. Despite the change in administration, President Joe Biden has largely maintained these tariffs.
However, as the specter of a rematch between Trump and Biden looms over the upcoming presidential election, both candidates are vying to present themselves as tough on China.
Trump, in particular, has floated the idea of escalating tariffs to at least 60% if re-elected—a move that Goldman Sachs warns could have dire consequences for the US economy.
The effective tariff rate across Chinese imports had already increased by 1.5 percentage points between 2017 and 2019, and Trump’s proposed measures could amplify this impact substantially.
While the notion of increased tariffs might promise a boost in government revenues—approximately $30 billion per year for each percentage point rise—it’s clear that the overall effect on the economy would not be positive.
Senior economist Ronnie Walker, commenting on the Goldman Sachs report, highlighted the potentially modestly negative direct impact on GDP, citing the adverse effects on real income and consumer spending outweighing any decline in the trade deficit.
Moreover, Walker emphasized the uncertainty surrounding indirect effects, such as disruptions to business sentiment and supply chains, which could further exacerbate the negative economic fallout from heightened tariff tensions.
As the debate over trade policy continues to unfold against the backdrop of geopolitical tensions, Goldman Sachs’ sobering assessment serves as a stark reminder of the high stakes involved in the realm of international trade and tariff negotiations.
