Former President Donald Trump’s latest tariff proposal, which he rolled out Monday on Truth Social, would have a likely impact on inflation across the United States, says Goldman Sachs analysis. In the new proposal, Trump recommends a 10% tariff on Chinese goods and a 25% duty on imports from Canada and Mexico. Together, the three countries account for 43% of U.S. imports in goods. The new tariffs, according to Goldman Sachs’ calculations, would rake in nearly $300 billion annually in revenue if enacted.
These increases, Goldman Sachs Chief Economist Jan Hatzius believes will be likely enough to substantially increase consumer prices in the United States. From their computation, a one percentage point rise in effective tariff rate would raise core PCE by 0.1 percent normally. In that case, if the new tariffs are implemented, this could lead to a 0.9% rise in core PCE prices.
Core PCE is the preferred measure of inflation at the Federal Reserve, and an increase in these prices might make the job of the central bank regarding interest rate strategy harder. Inflation currently is above the Fed’s target at 2%, even though it’s moderating, and it is expected to increase by 2.8% in the October PCE report. This would therefore widen the gap between current inflation levels and that of the Fed’s target, and therefore affect the decision-making of the Fed about rate cuts. While traders have been reducing their expectations for rate cuts in 2025, it remains unclear whether these expectations are driven by economic resilience or the potential impacts of Trump’s tariff proposals.
Still, whether the tariffs would be at the proposed level or whether there would be exceptions remains to be seen. Trump indicated that the tariffs were conditional, linked to changes in immigration policy and efforts to combat fentanyl trafficking. Some of his advisers have suggested that the tariffs could serve as a negotiating tactic rather than a definitive policy. Moreover, Goldman Sachs’ Hatzius noted that it is more likely that Canada and Mexico would avoid the proposed across-the-board tariffs, with China being the primary target.
The proposed tariffs, if enacted, could have wide-reaching consequences on U.S. inflation and the broader economy, with implications for Federal Reserve policy and trade relations.
