President-Elect Trump’s Tariffs Could Drive Up Inflation, Warns Goldman Sachs
President-elect Donald Trump’s plan to impose a 25% tariff on all goods from Mexico and Canada, as well as hike tariffs on products from China, would drive up costs for Americans and push inflation higher by nearly 1%, according to a warning from Goldman Sachs. The bank’s economists, Alec Phillips and Ronnie Walker, estimate that the proposed tariff increases would boost core PCE (personal consumption expenditures) prices by 0.9% if implemented.
The PCE index is the Federal Reserve’s favored inflation gauge, and the central bank is focusing on bringing the pace of price increases back to its target of 2%. The Commerce Department reported that the PCE index rose 0.2% in October from the month before and 2.3% year over year, while the core PCE, which excludes volatile food and energy prices, rose 0.3% for the month and 2.8% from a year ago.
Goldman Sachs notes that President-elect Trump’s plan to increase tariffs on China and impose them on Canada and Mexico is reminiscent of the approach taken during his first administration, where tariffs were announced as a negotiating tactic rather than a systematic tariff policy. The bank’s economists also warned that the tariffs could lead to a response from Mexico and Canada, which may impose their own tariffs on U.S. products.
Trump’s plan to impose a 25% tariff on all products coming into the United States from Mexico and Canada, as well as increase tariffs on China, has been met with warnings that it could lead to a trade war and drive up inflation. Trump took to social media to announce his plan, saying that the tariffs would remain in effect until drugs, particularly fentanyl, and all illegal immigrants stop entering the country.
