Goldman Sachs Predicts 15% Tariff Hike in 2025: Potential Economic Fallout
Goldman Sachs has raised its US tariff assumptions yet again, predicting a significant 15 percentage point hike in 2025. The global financial powerhouse anticipates that former President Donald Trump, if re-elected, will announce sweeping reciprocal tariffs on April 2. However, after accounting for product and country exclusions, the effective tariff increase is expected to be around 9 percentage points.
This sharp revision in tariff expectations signals potential economic turbulence, as increased tariffs could fuel inflation, slow economic growth, and push unemployment rates higher. Let’s break down what this means for the US economy and global trade.
Goldman Sachs’ Tariff Forecast and Its Implications
A More Aggressive Stance on Trade Tariffs
Goldman Sachs’ latest note on March 30 highlights a more aggressive assumption for reciprocal tariffs. The firm expects a 15% average tariff rate to be imposed on all US trading partners. This move could have broad implications across industries, affecting everything from manufacturing costs to consumer prices.
However, some exemptions are anticipated, which may reduce the final impact to a 9 percentage point increase in tariffs on average.
How Will Higher Tariffs Impact Inflation and Growth?
One of the biggest concerns surrounding tariff hikes is their inflationary impact. Higher tariffs lead to increased costs for imported goods, which often get passed down to consumers. Goldman Sachs has adjusted its 2025 core PCE inflation forecast to 3.5% year-on-year, up by 0.5 percentage points from previous estimates.
The impact won’t just be on inflation—economic growth is also expected to take a hit. The revised GDP growth forecast for 2025 now stands at:
- 1% (Q4-to-Q4 basis) – down by 0.5 percentage points
- 1.5% (annual average basis) – down by 0.4 percentage points
This slowdown in economic activity raises concerns about employment. As businesses face higher costs and weaker demand, they may resort to cost-cutting measures, including layoffs. Consequently, Goldman Sachs has raised its year-end 2025 unemployment forecast to 4.5%, up by 0.3 percentage points.
Recession Risk Rises to 35%
With slowing economic growth and declining business confidence, the risk of a 12-month recession in the US has jumped to 35%, up from the previous estimate of 20%.
Goldman Sachs highlights that the economic fundamentals are weaker than in previous years. Real income growth has already slowed sharply, and is expected to average just 1.4% in 2025.
A potential recession could create ripple effects across industries, causing financial market volatility, declining corporate profits, and weaker consumer spending.
Financial Ratios and Key Economic Indicators
To understand the full impact of these tariff hikes, here’s a quick look at some key economic indicators:
| Indicator | Pre-Tariff Estimate | Post-Tariff Estimate |
|---|---|---|
| Average US Tariff Rate | 3.4% | Up to 15% (effective 9%) |
| Core PCE Inflation (2025) | 3.0% | 3.5% |
| GDP Growth (Q4-to-Q4) | 1.5% | 1.0% |
| GDP Growth (Annual) | 1.9% | 1.5% |
| Unemployment Rate (2025) | 4.2% | 4.5% |
| Real Income Growth (2025) | 1.8% | 1.4% |
| Recession Probability | 20% | 35% |
What This Means for Consumers and Businesses
For Consumers:
- Expect higher prices on everyday goods, especially those imported from major trading partners.
- Inflation could remain stubbornly high, making it harder for the Federal Reserve to cut interest rates.
- Job security may weaken as businesses grapple with higher costs and slower growth.
For Businesses:
- Manufacturers reliant on imports may face higher input costs, reducing profit margins.
- Export-driven industries could suffer from retaliatory tariffs imposed by trading partners.
- Uncertainty around tariffs may delay investment decisions, slowing business expansion.
Frequently Asked Questions (FAQ)
1. What is the expected tariff hike in 2025?
Goldman Sachs expects an average 15% tariff hike on all US trading partners, but after exclusions, the effective increase is estimated to be 9 percentage points.
2. How will higher tariffs impact inflation?
Higher tariffs increase the cost of imported goods, leading to higher consumer prices. Goldman Sachs has raised its core PCE inflation forecast to 3.5% for 2025, up by 0.5 percentage points.
3. Will economic growth slow down due to these tariffs?
Yes, GDP growth is expected to decline. The revised Q4-to-Q4 GDP growth forecast for 2025 is 1.0%, down from 1.5%. On an annual basis, growth is projected at 1.5% instead of 1.9%.
4. What about unemployment?
With slower economic growth and higher costs, businesses may cut jobs. The unemployment rate is now expected to rise to 4.5% by the end of 2025.
5. Is there a risk of recession?
Yes, Goldman Sachs has increased the probability of a 12-month recession from 20% to 35%, citing slower income growth, declining business confidence, and weaker economic fundamentals.
6. How will this affect businesses?
- Higher costs for imported goods
- Potential retaliatory tariffs from trading partners
- Weaker consumer demand due to higher prices
7. What can consumers do to prepare?
- Budget wisely as inflation may rise.
- Monitor job markets for potential employment shifts.
- Invest cautiously as financial markets may see volatility.
Final Thoughts
The possibility of a 15% tariff hike in 2025 could reshape the US economic landscape, leading to higher inflation, slower growth, and increased unemployment. With a rising risk of recession, both consumers and businesses should stay informed and prepared.
As the situation unfolds, keeping an eye on trade policies, Federal Reserve actions, and global economic trends will be crucial for navigating the potential economic challenges ahead.
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Disclaimer: This blog post is for informational purposes only and should not be considered financial advice. Investors should conduct thorough research and consult with a qualified financial advisor before making any investment decisions.