Goldman Sachs cautioned on Tuesday that President-elect Donald Trump’s tariff policies could increase U.S. inflation by 1%.
The concern comes from Trump’s announcement on his social media platform, Truth Social, that he would impose an additional 10% tariff on Chinese products and a 25% tariff on imports from Canada and Mexico starting on his first day in office.
According to CNBC, Goldman Sachs chief economist Jan Hatzius stated in an analysis note that U.S. consumer prices would notably increase if Trump’s proposed tariffs were implemented.
Hatzius explained, “Using our rule of thumb that every 1 percentage point increase in the effective tariff rate would raise core Personal Consumption Expenditures (PCE) prices by 0.1%, we estimate that the proposed tariff increases on China, Canada, and Mexico would boost core PCE prices by 0.9% if implemented.”
The core price index excludes volatile items like energy and food.
The PCE core price index, compiled by the Department of Commerce, is the inflation indicator used by the U.S. Federal Reserve.
If Trump’s tariffs cause U.S. inflation to fluctuate, it could disrupt the Fed’s plans for interest rate cuts.
U.S. inflation has already begun to show signs of resurgence.
The economists predict that the October core PCE price index, set to be released on Wednesday, just before Thanksgiving, will show a 2.8% year-over-year increase, slightly higher than September’s 2.7% rise.
Goldman Sachs notes that China, Canada, and Mexico account for 43% of U.S. imports. If Trump’s proposed tariffs are implemented, annual tariff revenue could approach $300 billion.
However, Trump has indicated that the tariffs could be adjusted if Canada and Mexico demonstrate efforts to prevent illegal immigration and drug trafficking into the U.S., creating some uncertainty about the final tariff rates.
