Tariffs Top Investor Concerns as Trump Begins Second Term

Goldman Sachs Survey Highlights Fears Over Trade Policy

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A recent survey conducted by Goldman Sachs indicates that tariffs are at the forefront of investor worries as President Trump starts his second term. While many investors share Goldman Sachs’ views on potential policy shifts, they express heightened concerns about the economic and monetary repercussions linked to Trump’s trade initiatives. This survey gathered insights from over 500 investors regarding their forecasts on important policy matters like immigration, trade, and fiscal policy.

Concerns Over Universal Tariffs

The prospect of a universal tariff ranging from 10% to 20% on all imported goods emerged as the primary concern, with 60% of respondents highlighting it. This finding reflects anxiety over the possible intensification of Trump’s trade policies.

During a podcast, David Mericle, Chief US Economist at Goldman Sachs, stated, “This is a serious proposal and it is a serious risk and that’s why people are very focused on it, but it’s not the modal view in markets.” Although neither Goldman Sachs nor the majority of investors believe such a steep tariff will come to fruition, its mention in the survey illustrates the extent of market sensitivity. The average investor estimated a 35% chance of a universal tariff being imposed, slightly lower than Goldman Sachs’ 40% prediction.

Focus on China and Autos

Investors appear particularly wary about tariffs on Chinese imports and automobiles, aligning with Goldman Sachs’ baseline expectations. The survey also pointed to investor discomfort stemming from Trump’s previous, unexpected announcement regarding a 25% tariff on imports from Mexico and Canada.

Historically, similar announcements during Trump’s first term did not always progress into actual policy. “There were a lot of things that were proposed at one point during the first Trump administration that didn’t get fully enacted,” Mericle noted.

Broader Policy Predictions

Beyond trade, investors’ expectations generally align with Goldman Sachs’ forecasts. For immigration, the anticipated drop to 750,000 annual entries matches Goldman’s predictions, with most respondents expecting sanctioned immigration to remain steady and unauthorized immigration to decline toward zero. In terms of fiscal policy, there is a widespread belief that the 2017 tax cuts will be prolonged, along with modest additional cuts.

“We suspect that Republicans would be concerned that if they don’t deliver on some of the campaign proposals, that would antagonize voters,” Mericle explained, highlighting the reasoning behind potential additional tax cuts. Nonetheless, awareness of existing fiscal constraints suggests that these reductions may be smaller than some of Trump’s campaign promises.

Varied Investor Opinions on Efficiency Initiatives

Investor perspectives regarding the new Department of Government Efficiency and its implications for spending cuts show considerable variability, likely due to the novelty of this initiative.

Understanding Tariff Impacts

A notable difference exists between Goldman Sachs and investor interpretations concerning tariff implications. Investors express alarm over potential increases in inflation and interest rates, while Goldman Sachs points to historical data from 2019, suggesting the Federal Reserve may prioritize economic growth over the one-time price effects associated with tariffs. Mericle warned that the market might be oversimplifying the situation, stating, “the risks are a little bit more two-sided than people are appreciating.”

Goldman Sachs’ Outlook on Federal Reserve Actions

Goldman Sachs holds a more cautious outlook compared to current market sentiment, forecasting further Fed rate cuts in the near future. They caution that markets may underestimate the potential adverse effects on the economy, which could trigger additional interventions by the Fed.

“People are under-weighting the potential risks… that could trigger another episode comparable to the 2019 insurance cuts,” Mericle remarked, referencing a period when the Fed reduced rates to avert a possible economic downturn.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.