Goldman Sachs Warns of Trade Risks to Europe and Asia, Including China, Under Trump Presidency

In a paper published Friday, Goldman Sachs strategists led by Guillame Jaisson provided data on how the next US administration will affect activity and profitability across the pond.

Donald Trump’s election victory in the United States has increased the prospect of heavier taxes on China — but it may not be the only Asian country in this situation, according to Goldman Sachs.

Trump suggested during his campaign that imports from China would be subject to even greater 60% levies and that tariffs on imports from other countries should be increased to at least 10%

While the United States’ bilateral trade deficit with China has fallen slightly during the Trump administration, imbalances with other Asian exporters have risen dramatically and may face increasing scrutiny, according to Goldman Sachs.

https://twitter.com/CNBC/status/1855868674176946667

According to Goldman, Trump’s proposed across-the-board tariffs pose a major risk to European exports, but they expect him to apply a more limited set of duties on economies, focusing especially on auto exports.

That said, our research suggests that the actual scale of tariff hikes may be less important for GDP than the trade policy uncertainty that has already been created, according to Goldman  analysts said.

The researchers argue that the trade policy uncertainty caused by tariff hikes will be more consequential than the actual increases themselves. Rather than the tariffs themselves, they argued, the uncertainty around them will be the greater drag on GDP.
They added that, in the baseline scenario, they expect a significant further increase in TPU.

Trump Victory May Raise Tariffs and Defense Spending, Cutting Eurozone Growth Forecast

Recent weeks have seen a surge in the firm’s trade policy uncertainty index for Europe due to the increased probabilities of a Trump victory in the markets.

Despite the obvious danger posed by Trump’s 10% tariff on all goods, many predict that his administration will impose a more mild set of tariffs on European nations.

Auto exports, valued at $80 billion (or 0.9% of EU exports), are likely to be the focus of these levies, according to the analysts. They went on to say that the GDP of countries like Switzerland, Germany, and Sweden will be hit particularly hard by the tariffs.

 A Trump presidency will drive European countries to increase defense spending to compensate for a possible decline in US military support for Ukraine.  Wartime support will cost the EU an additional 0.5% of GDP each year, stated Goldman’s researchers.

As a result, the bank’s economists now foresee eurozone growth of 0.8% in 2025, down from previous estimates of 1.1% and below analysts’ consensus of 1.2%.

However, any consequent growth boost would most certainly be constrained by low military spending multipliers in Europe, upward pressure on long-term yields from greater deficits, and negative confidence effects from rising geopolitical risk, according to economists.

ABOUT THE AUTHOR See More

Arslan Ali Butt

Lead Markets Analyst – Multi-Asset (FX, Commodities, Crypto)

Arslan Ali Butt serves as the Lead Commodities and Indices Analyst, bringing a wealth of expertise to the field. With an MBA in Behavioral Finance and active progress towards a Ph.D., Arslan possesses a deep understanding of market dynamics. His professional journey includes a significant role as a senior analyst at a leading brokerage firm, complementing his extensive experience as a market analyst and day trader. Adept in educating others, Arslan has a commendable track record as an instructor and public speaker. His incisive analyses, particularly within the realms of cryptocurrency and forex markets, are showcased across esteemed financial publications such as ForexCrunch, InsideBitcoins, and EconomyWatch, solidifying his reputation in the financial community.