Economy

Goldman says trade-war escalation to drive US inflation higher

Goldman Sachs/Bloomberg

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Goldman revised up its estimate of the tariff impact on core personal consumption expenditures inflation to 0.2 percentage point.

Tuesday 14, May 2019

(Bloomberg) -- Goldman Sachs Group said that President Donald Trump's latest tariff increase on Chinese goods will drive up the Federal Reserve's preferred measure of underlying inflation, and a further escalation of the trade war will have an even greater impact on prices as well as economic growth.

The lender estimated that if the US imposes tariffs on the roughly $300 billion remaining in Chinese goods, the effect would increase to 0.5 point.

According to Goldman Sachs, should core inflation rise noticeably' above two per cent next year, that would slightly increase the likelihood of an interest-rate increase by the central bank.

The investment bank cited new evidence of the effects of the 2018 tariffs from two studies published in March by the National Bureau of Economic Research. It also broke out consumer prices on categories affected by tariffs, showing costs had increased sharply in the last year for such sectors while declining in non-tariff categories of items.

A Goldman economists said that the costs of the tariffs have fallen entirely on US businesses and households, contrasting with Trump's contention that China pays the levies, adding that further escalation of the trade war could result in a hit to GDP as large as 0.4 per cent, and if trade tensions sparked a major sell-off in the equity market the growth impact could worsen considerably.

China’s Ministry of Finance earlier this week announced that the country will raise tariffs on American goods starting 1 June after the US increased tariffs on 5,700 different product categories from China to 25 per cent from 10 per cent.

According to the note by Godman’ analysts David Choi, David Mericle as well as Blake Taylor and Ronnie Walker, while consumer goods account for about 25 per cent of the items targeted in last week’s escalation of US tariffs, consumer products make up about 60 per cent of the remaining tranche of about $300 billion in Chinese goods.

there is about a 30 per cent chance that Trump slaps tariffs on the remaining $300 billion of imports that aren’t yet targeted, Goldman said.

 

TAGS : Goldman Sachs Group, President Donald Trump, Chinese goods, US-China Trade war

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