Tariffs are equivalent to tax increases! Goldman Sachs: U.S. production and employment will be impacted, GDP growth rate may decrease by nearly 2 percentage points

Author: Fang Jiayao

Source: Wind Trading Platform

The tariff war impacts U.S. production and employment, with Goldman Sachs predicting U.S. GDP growth of only 0.5% this year.

On April 27th, Eastern Time, according to the Wind Trading Platform, Goldman Sachs released a research report indicating that due to trade tensions and high tariffs, U.S. GDP growth is expected to be only 0.5% by 2025, with tariffs contributing approximately 2 percentage points of negative impact.

Goldman Sachs analyzes that tariffs act like taxes, tightening financial conditions and increasing uncertainty for businesses. Specific disruptions include: first, industries reliant on imported raw materials face production cost surges of 5% to 15% due to tariffs, and some companies may not be able to pass on costs to consumers, facing risks of production halts or layoffs.

Second, U.S. export companies face retaliatory tariffs from overseas and low-price dumping from competitors, hindering exports in agriculture, electronics, transportation equipment, and other industries. Third, if other countries restrict rare earth exports, key industries reliant on rare earths, such as semiconductors, electronics, and new energy vehicles, may face production interruptions.

Additionally, Goldman Sachs' survey found that about half of analysts believe the trade war will lead to production interruptions and layoffs. In short, the tariff war not only impacts the production and employment of U.S. companies but also weakens the overall growth momentum of the U.S. economy.

Tariff Impact on U.S. Manufacturing

The most direct impact of tariffs is the increase in production costs for U.S. companies, especially for industries reliant on imported raw materials, such as the automotive manufacturing and metal processing industries. The increase in production costs for these industries may account for a significant portion of their operating profits, with some industries exceeding 100%. This means that some U.S. companies may not be able to pass on rising costs to consumers and may choose to halt production or lay off workers, affecting production stability.

Goldman Sachs estimates that certain U.S. companies sourcing raw materials from specific countries face tariffs of 25% or higher, which could lead to production cost increases of 5-15% in the most severely affected industries. If the U.S. imposes tariffs as high as 145% on other countries, Goldman Sachs estimates that industries where tariff costs account for more than half of operating earnings represent about 1% of U.S. total output. More severely, companies with a high proportion of overseas business not only face rising cost pressures but also have to deal with foreign retaliatory tariffs, while overseas competitors engage in low-price dumping, significantly weakening their competitiveness.

In addition to production costs, foreign retaliatory tariffs are also a significant risk. High tariffs imposed by other countries on U.S. exports may render most U.S. exports uncompetitive, with some countries' tax rates high enough to block direct exports from most U.S. companies. Goldman Sachs estimates that this will affect over 750,000 jobs across various industries, including agriculture, electronics, transportation equipment, and chemicals. Although the U.S. can redirect products to other markets, losing major market exports in the short term will bring tremendous shocks.

Goldman Sachs also pointed out that restrictions on rare earth elements may exacerbate production risks in the U.S. If other countries further restrict rare earth exports, many high-tech industries reliant on rare earths, such as semiconductors, electronics, and new energy vehicles, will face risks of production interruptions, potentially affecting about 200,000 to 500,000 jobs. These industries include the production of various products using rare earths, such as alloys, aerospace components, X-ray tubes, smartphones, lasers, semiconductors, and magnets Finally, Goldman Sachs analysts surveyed the companies in the industries they cover, and the results showed that about half of the analysts believe that production may be disrupted due to the impact of the trade war, and there may be layoffs.

Recent news reports indicate that some U.S. officials are concerned that the currently very high tariff rates may lead to unexpected negative consequences, and therefore they hope to ease tariffs in a timely manner. Analysts predict that tariff policies may be relaxed. However, if they are not relaxed, the expectations for economic growth may further decline, leading to more downside risks for GDP forecasts