New Tariffs on Imports from China ‘Seem Very Likely’ in a Second Trump Term: GS

Fresh tariffs on imports from China are “very likely” under a potential second Trump administration, according to strategists at Goldman Sachs. They cite “clear” authority for implementing such tariffs and note that there is “fairly broad public support” for them.

The strategists project that while some goods may see tariff increases as high as 60 percentage points, the average increase could be closer to 20 percentage points.

Former President Trump has outlined various tariff proposals for his second term, including a universal 10% baseline tariff on all imports, a 60% tariff specifically on imports from China, and the cancellation of Permanent Normal Trade Relations with China. Additionally, he has suggested imposing “reciprocal” tariffs that match the rates charged by trading partners on U.S. exports.

Trump also hinted at tariffs on specific automobile imports from Mexico and potentially the European Union, with plans to use the revenue generated from tariffs to lower other taxes.

Goldman Sachs economists believe that revoking China’s Permanent Normal Trade Relations and implementing reciprocal tariffs are less likely to occur, as these actions would require congressional approval. Instead, they argue that tariffs could be imposed more easily through executive action.

Among Trump’s proposals, the 10% universal tariff is viewed as the most serious and potentially implementable suggestion, although it is not seen as the most probable outcome of a second Trump administration. This is due to the ambiguous authority to impose broad tariffs compared to targeted measures, as well as weaker support from both the public and Republican lawmakers.

Concerns over significant negative economic effects may also hinder the implementation of such tariffs. However, Goldman Sachs considers a “close call,” suggesting that a more limited version—like a lower tariff rate or applying it to a select group of trading partners—could still emerge.

Overall, Trump’s proposed tariffs could have substantial implications for global growth, inflation, and trade policies, raising the risk of a trade war. Goldman Sachs analyzes potential outcomes by exploring a scenario where a 10 percentage point tariff is imposed across the board on all imports and effective tariffs on Chinese goods are increased by nearly 20 percentage points, leading to full retaliation from other nations. In this scenario, the U.S. could see price levels rise by just over 1%, with GDP declining by slightly more than 0.5%.

Globally, the inflationary impact would be smaller in countries outside the U.S., as only U.S. goods imports—which represent a minor fraction of consumption overseas—would face retaliatory tariffs. Moreover, a strong dollar resulting from a hawkish Federal Reserve could raise import prices in economies heavily reliant on U.S. trade, though slower growth in those economies would mitigate inflationary pressures.

Goldman Sachs estimates a 0.5% increase in global prices, with the highest impact expected in Canada, Mexico, and other emerging markets, while less impact is anticipated in the Eurozone, UK, and other developed markets.

The growth slowdown is expected to be more severe outside the U.S., as price rises from tariffs could decrease real income and spending. Investment might also suffer due to increased trade policy uncertainty. The analysts project a global GDP reduction of approximately 0.9% when factoring in these issues.

In the U.S., rising inflation due to tariffs could lead the Federal Reserve to maintain its current stance into 2025, while central banks in other countries might lower their rates by over 100 basis points. In a more favorable scenario that restricts tariffs to China, the detrimental effects on global GDP would be smaller but still significant.