Why US consumers will pay for over half of Trump tariffs this year: Goldman Sachs estimate

Goldman Sachs estimates that U.S. consumers will bear 55% of President Trump's tariff costs by year-end, with U.S. companies absorbing 22% and foreign exporters 18%, contradicting the administration's claims. This burden is projected to push the inflation rate to 3% by December, exceeding the Fed's 2% target, and has already increased core PCE prices by 0.44% due to tariffs. The analysis underscores significant domestic economic implications from trade policy, despite the evolving nature of tariffs and ongoing delays in government economic data releases.

Analysis

Goldman Sachs (GS) projects that U.S. consumers will bear 55% of President Trump's tariff costs by year-end, with U.S. companies absorbing 22% and foreign exporters 18%. This directly contradicts the White House's assertion that foreign nations would primarily shoulder these costs. The analysis highlights a significant domestic transfer of tariff burden, impacting household purchasing power.

The tariffs are estimated to elevate the U.S. inflation rate to 3% by December, surpassing the Federal Reserve's 2% target. Core Personal Consumption Expenditure (PCE) prices, a key Fed inflation metric, have already increased by 0.44% due to these levies. This inflationary pressure, evidenced by August's 2.9% consumer inflation, could influence future monetary policy decisions.

Goldman's projections are subject to the evolving nature of trade negotiations and do not incorporate recent threats of 100% tariffs on China. Furthermore, the ongoing government shutdown is delaying critical economic data releases, including September's inflation and jobs reports, creating uncertainty for policymakers and investors. President Trump has also publicly dismissed Goldman's tariff impact assessments.

Key Decisions for Investors

• Monitor inflation indicators closely, particularly core PCE, as tariff-driven price increases could prompt a more hawkish Fed stance or limit future rate cuts.
• Evaluate sector-specific exposure to tariff costs, as U.S. companies absorbing 22% of the burden may face margin pressure, especially those reliant on imported inputs.
• Factor in the uncertainty from evolving trade policies and delayed economic data, potentially increasing market volatility and requiring agile portfolio adjustments.
• Consider the potential for consumer spending impacts, given that U.S. households are projected to bear the majority (55%) of tariff costs, which could dampen discretionary spending.