Trump’s proposed tariffs on Mexico, Canada, China will increase inflation, warns Goldman Sachs
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President-elect Donald Trump’s plan to impose a 25% tariff on all goods from Mexico and Canada while raising tariffs on products from China will raise costs for Americans, Goldman Sachs warned this week.
Economists at a Wall Street bank wrote in a paper on Tuesday that Trump’s proposal yesterday would add tariffs to 43% of US imports, and could raise inflation by about 1%.
President-elect Donald Trump’s plan to raise tariffs on China and impose tariffs on Canada and Mexico will increase inflation, Goldman Sachs warned this week. (Photos by Scott Olson/Getty Images)
“We use our rule of thumb that every 1 [percentage point] An increase in the effective tax rate can increase the bottom line [personal consumption expenditures] PCE by 0.1%, we estimate that the proposed tax hike would increase core PCE prices by 0.9% if implemented,” the note, written by Goldman Sachs economists Alec Phillips and Ronnie Walker, read.
The PCE index is the Federal Reserve’s favored inflation gauge. The Commerce Department reported on Wednesday that it rose 0.2% in October from the previous month and 2.3% year-over-year. Core PCE, which excludes variable food and energy prices, rose 0.3% in the month and increased 2.8% from a year ago.
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The central bank is focusing on the PCE headline figure as it tries to bring the pace of inflation back to its 2% target, although policymakers view the headline data as a better indicator of inflation.
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Trump on Monday said he would issue an executive order when he takes office to impose 25% tariffs on Mexico and Canada on all goods entering the United States, as well as increased tariffs on China due to the flow of illegal immigrants. illegal drugs.
In a Truth Social post, Trump, who takes office on January 20, 2025, said thousands of people are “pouring” into Mexico and Canada at “unprecedented rates.”
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“Right now the Caravan from Mexico, made up of thousands of people, seems unstoppable in its quest to come through our Open Hole,” he wrote. “On January 20th, as one of my first Executive Orders, I will sign all necessary documents to impose a 25% Tariff on Mexico and Canada on ALL products entering the United States, and ridiculous Open Borders.”
“This Tariff will remain in effect until such time as drugs, especially Fentanyl, and all illegal aliens stop this Invasion of our Country!” he added. “Both Mexico and Canada have every right and power to easily resolve this long-simmering issue.”
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Since his first administration, Trump has long pushed Mexico to participate in preventing the entry of illegal immigrants and illegal drugs into the United States.
In a subsequent post, Trump said he would impose an additional 10% tariff on all Chinese goods imported into the US over the “huge amount” of drugs, particularly fentanyl, being smuggled into the US.
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Goldman Sachs economists noted that Trump previously threatened a 25% tariff on Mexico during his first administration, but Canada’s announcement is “very surprising.”
“Overall, this announcement is very reminiscent of the first Trump administration, where such rates were announced as a negotiating tactic, rather than formal tax policies (eg, “10-20%” of the “global basic tax”) Trump often discussed during the campaign. ” they wrote.
FOX Business’ Eric Revell and Louis Casiano contributed to this report.
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