Goldman analysis: greater impact on actual income and personal consumption
Analysts predict that if the tariff imposition plan against China, advocated by former U.S. President Donald Trump, is implemented, it could hinder U.S. economic growth and increase inflation.
According to Bloomberg on the 7th (local time), analysts at Goldman Sachs Group, Inc. projected in a report the day before that if China retaliates, each one percentage point increase in the effective tariff rate could decrease U.S. growth by up to 0.15%.
Even if former President Trump boosts spending and investment by implementing tax cuts funded by tariff revenues, the U.S. Gross Domestic Product (GDP) is expected to decrease by at least 0.05%.
They also noted that core consumer prices could rise by more than 0.1% as companies pass on increased import costs to consumers and some domestic manufacturers raise their prices.
During his tenure, former President Trump provoked China’s retaliation by imposing up to 25% additional tariffs on $300 billion worth of Chinese imports. President Joe Biden is also essentially maintaining these tariffs.
As former President Trump and President Biden are expected to have a rematch in the November election, both are trying to take a tougher stance against China. Former President Trump has announced that he would increase tariffs on China to over 60% if elected. Goldman Sachs noted that while the effective tariff rate on Chinese imports increased by 1.5 percentage points from 2017 to 2019, Trump’s current proposal could lead to a much more significant increase.
Ronnie Walker, a senior economist at Goldman Sachs Group, Inc., pointed out that “while government revenues are expected to increase by about $30 billion (0.1%) annually for each one percentage point increase in the tariff rate on China, the overall impact on the U.S. economy is not positive.”
The report analyzed, “The direct impact of tariff increases on GDP is likely to be somewhat negative, as the blow to real income and personal consumption due to price increases is greater than the reduction in the trade deficit.” It also pointed out the possibility of a negative impact expanding due to indirect effects such as a decline in corporate sentiment and disruptions of supply chains.
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