Daily Management Review

An Escalation Of Global Trade Wars Being Predicted By Goldman Sachs


It own expectations of an escalation of the trade was that the United States has waged with China and threatened to do so with Mexico has been revised by Goldman Sachs.
According to a note sent the Wall Street investment bank on Monday, the chances of the US president Donald Trump’s administration imposing a new wave of 10 per cent import tariff on the remaining $300 billion of imports from China is currently at 60 per cent. The bank has earlier made an estimate of this happening at 40 per cent. In a surprising move, Trump increased tariffs on Chinese products worth $200 billion imported into the US from 10 per cent to 25 per cent last month. The Trump administration is reportedly now considering whether it is possible to increase the tariffs on the rest of $300 billion worth of other Chinese imports.
Its own estimate of Trump imposing a tariff on all products from Mexico has also been reviewed by Goldman and the investment bank now believes that the chance that Trump would impose duties tariffs on 5 per cent of Mexican goods initially is 70 per cent. It also currently sees a 50 per cent chance that tariff being raised up 10 per cent by Trump later on.
In another of his unexpected move, Trump suddenly announced that all products entering the US from Mexico would be subjected to an initial tariff of 5 per cent if Mexico does not do enough to curb inflow of illegal immigrants into the US. Trump has threatened that the tariffs would be increased by 5 per cent every month till they reach 25 per cent by October.
“Additional tariff rate increases or an across-the-board auto tariff are also possible but not our base case,” Goldman’s analyst team led by Jan Hatzius said in the note. Compared to a 25 per cent probability estimate earlier, the chances that sweeping auto tariffs would be introduced by the US this year was revised by Goldman to 40 per cent.
While deals with China and Mexico are anticipated to represent a removal of tariffs, this is not expected until late 2019 or into 2020.
Growth is likely to be impacted by the escalation of the trade war between the US and China – the two largest economies of the world, and the ongoing tensions at the southern border of the US, the note anticipated.
Their forecast for the U.S. GDP (gross domestic product) for the second half of the year was also lowered by Goldman analysts by about 0.5 percentage points at 2 per cent. However the general forecast is that economic growth will “rebound moderately in 2020 as tariffs come off and financial conditions stabilize.”
The subjective probabilities for interest rate cuts from the US Federal Reserve has been “sharply raised” by Goldman considering the downside risks to growth. “But while it is a close call, the outlook has not yet changed enough for cuts to become our baseline forecast,” the note added.