Donald Trump's China Tariff Push Could Slow Down Economy And Fuel Inflation, Goldman Sachs Cautions

Goldman Sachs has cautioned that presidential candidate Donald Trump‘s proposed China tariff plan could potentially impede U.S. economic growth and fuel inflation.

What Happened: Goldman Sachs analysts have expressed concerns that a substantial increase in U.S. tariffs on Chinese goods, as advocated by Trump, could negatively impact the domestic economy and trigger inflation, reported Bloomberg.

The analysts highlighted that a 1% rise in the effective tariff rate could slash U.S. growth by up to 0.15% if China retaliates.

Even if the tariff revenue is utilized to fund tax cuts that boost spending and investment, the gross domestic product (GDP) would still experience a minimum 0.05% decline.

The tariffs could also elevate core consumer prices by slightly over 0.1%, as companies would transfer the increased import costs to consumers, leading to a year-long inflation surge.

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During his presidency, Trump imposed tariffs of up to 25% on over $300 billion worth of Chinese imports. President Joe Biden has largely upheld these tariffs. Trump has suggested raising China tariffs to at least 60% if he secures re-election.

Senior economist Ronnie Walker noted that despite each percentage-point rise in China tariffs potentially boosting government revenues by approximately $30 billion annually, the overall economic impact would likely be negative. The increased prices would outweigh the decline in the trade deficit, resulting in a “modestly negative” effect on GDP.

Why It Matters: Trump’s potential return to the White House has concerned investors and markets alike. In February, Trump hinted at possibly imposing a tariff exceeding 60% on all Chinese imports if he returns to the presidency. This news rattled Chinese investors and prompted Goldman Sachs to raise an alarm about the economy and stocks.

In March, reports emerged that Trump had authorized a CIA operation to influence public opinion against Xi Jinping‘s government in China. Furthermore, last week, covert Chinese online accounts were reportedly found posing as American Trump supporters, launching attacks on President Biden and fueling domestic divisions ahead of the upcoming election.

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