trump's tariff gamble: goldman sachs flags recession risk

2025-03-31 general

new york, Monday, 31 March 2025.
goldman sachs warns that president trump’s proposed tariffs could backfire, increasing the likelihood of a recession to 35%. the investment bank projects that these tariffs will not only elevate inflation to 3.5%, far exceeding the federal reserve’s 2% target, but also stunt economic growth to a mere 1% in 2025. amid voter unease and disapproval of trump’s economic policies, the uaw president shawn fain has come out in support of the tariffs as a means to promote american jobs.

assessing the economic impact

Goldman Sachs anticipates that Trump’s tariffs could increase tariff rates by 15 percentage points, although exclusions might reduce this to 9 percentage points [1]. This projection has led Goldman Sachs to increase its estimate of the likelihood of a recession in the next 12 months from 20% to 35% [7]. The firm also lowered its 2025 growth forecast from 1.5% to 1% [7]. These figures suggest a significant shift in economic outlook, prompting investors to reassess their strategies in anticipation of potential market volatility [1].

fed response and market expectations

In response to the anticipated economic slowdown, Goldman Sachs now projects that the Federal Reserve will implement three interest rate cuts in 2025, specifically in July, September, and November [1][8]. These cuts aim to mitigate the negative impacts of the tariffs on economic growth [8]. The fed funds rate is expected to be down from 4.25% to 4.50% today [1]. Such monetary policy adjustments are crucial for investors to monitor, as they can significantly influence borrowing costs and investment returns [GPT].

investor sentiment and political divide

A recent CBS/YouGov poll indicates that 55% of Americans believe Trump is overly focused on tariffs, while 64% feel he is not adequately addressing the issue of lowering prices [2]. Despite this unease, Trump maintains a 50% approval rating [2]. This divergence in public opinion highlights the political complexities surrounding the tariff policies and creates uncertainty for investors navigating market reactions [3]. The announcement of additional tariffs on April 2, dubbed “Liberation Day,” adds another layer of anticipation and potential market disruption [2].

sector-specific considerations

The automotive industry, in particular, faces potential upheaval due to the proposed 25% tariff on foreign-made cars and parts [2][4]. Analysts warn that these tariffs could increase car prices by up to $10,000, potentially impacting both domestic and international automakers [2]. While UAW President Shawn Fain supports tariffs as a tool to protect American jobs and revitalize manufacturing, economists at Stanford University argue against tariffs, stating that they are not an effective tool to improve the welfare of Americans or strengthen key industries [4]. This divergence of opinions underscores the complex considerations investors must weigh when assessing sector-specific impacts [4].

Bronnen

trade policy economic impact