Goldman Sachs Warns of Potential Economic Consequences
Goldman Sachs Group has cautioned that the implementation of steep tariffs on Chinese imports, as proposed by former President Donald Trump, could have significant implications for the US economy.
Effect on US Growth and Inflation
- Every percentage point increase in the effective tariff rate could potentially reduce US growth by up to 0.15 per cent.
- If China responds with retaliatory measures, the impact on growth could be exacerbated.
- A major escalation in tariffs could lead to a temporary surge in inflation, with core consumer prices potentially rising by over 0.1 per cent.
Challenges for Policymakers
Heightened tariffs could pose challenges for policymakers in maintaining price stability and economic growth, especially if firms pass on higher import costs to consumers.
Trade Tensions and Proposed Tariff Hikes
Former President Trump’s aggressive stance on trade with China, including imposing tariffs on over $300 billion worth of Chinese imports, has led to retaliatory measures and escalating trade tensions.
President Joe Biden has maintained these tariffs, while Trump has proposed further escalations if re-elected.
Economic Impact of Tariff Hikes
- The effective tariff rate on Chinese imports increased by 1.5 percentage points between 2017 and 2019.
- Trump’s proposed tariff hikes could worsen this trend, leading to far-reaching economic consequences.
- While higher tariffs may boost government revenues, the overall negative impact on the economy is expected to outweigh any benefits.
Conclusion
Goldman Sachs’s analysis highlights the potential negative effects of escalating tariffs on the US economy, including declines in real income, consumer spending, and disruptions in global supply chains.
