(Reuters) – Goldman Sachs economists estimate that if the latest trade tariffs announced by U.S. President Donald Trump after assuming office in his second term are sustained, they could take a significant chunk out of Corporate America’s bottom line.
Trump imposed hefty new tariffs of 25% over the weekend on imports from Mexico and Canada and 10% against China, saying this could cause “short-term” pain for Americans.
“These announcements have come as a shock to many investors who expected tariffs would only be imposed if trade negotiations failed,” the Wall Street brokerage said in a note dated Feb. 2.
Goldman Sachs estimates that every 5-percentage-point increase in the tariff rate would lower the S&P 500’s earnings per share by roughly 1% to 2%.
As a result, if sustained, the brokerage said the latest tariff announcements could bring about a reduction in its forecasts for the S&P 500’s earnings by roughly 2% to 3%, not taking into account any added impact from other trends such as monetary policy uncertainty.
However, it said there is a substantial probability that the tariffs against Canada and Mexico would be temporary.
Its FX analysts believe that tariffs could strengthen the dollar further, although that should have a limited impact on aggregate S&P 500 earnings.
“To the extent investors believe the tariffs will be a short-lived step toward a negotiated settlement, the equity market impact would be smaller,” Goldman Sachs said, adding that there could be a bigger impact on equities if the latest announcements are viewed as signs of increasing the odds of additional escalation.
The brokerage previously estimated that a sustained 25% tariff on imports from Canada and Mexico would increase the effective U.S. tariff rate by 7 percentage points from the current 3, implying a 0.7% increase in U.S. core PCE prices and a 0.4% hit to the GDP.
(Reporting by Shashwat Chauhan in Bengaluru; Editing by Pooja Desai)
