Goldman Sachs Warns of Market Risks as Trump’s Tariff Threats Loom

President Donald Trump’s latest tariff threats continue to weigh on global markets, with Canada and Mexico temporarily spared while China faces full-scale levies. However, the tariff pause for North American trade partners lasts only 30 days, and Goldman Sachs warns that further trade disruptions could significantly impact corporate earnings and investor returns.

The Impact on the S&P 500

According to Goldman Sachs’ chief U.S. equity strategist David Kostin, higher tariffs will squeeze corporate margins and hurt S&P 500 earnings per share (EPS). Companies forced to absorb higher input costs will see profit margins shrink, while those that pass costs onto consumers risk lower sales.

Goldman Sachs estimates that every five-percentage-point increase in tariffs could reduce S&P 500 earnings per share by 1% to 2%. If Trump’s planned tariffs become a reality, the bank expects a 2% to 3% drop in its EPS forecasts for the index.

However, these projections do not account for the additional effects of economic uncertainty, tightening financial conditions, or consumer behavior shifts. Given that investors closely track EPS as a key valuation metric, any decline in earnings could hit stock prices hard.

Trade War Escalation: U.S., China, Canada, and Mexico

Trump has already imposed 10% tariffs on China, prompting swift retaliation from Beijing. China countered by slapping 15% tariffs on American coal and natural gas and 10% on U.S. oil.

Meanwhile, Trump initially threatened 25% tariffs on Canada and Mexico, but last-minute negotiations delayed the move. Mexican President Claudia Sheinbaum agreed to deploy 10,000 troops to curb fentanyl trafficking, while Canadian Prime Minister Justin Trudeau pledged $1.3 billion toward border security efforts. Both countries now have 30 days to finalize a permanent deal or risk tariffs being reinstated.

Economic Consequences: Inflation and GDP Growth

Goldman Sachs previously estimated that a sustained 25% tariff on Mexican and Canadian imports would drive up core personal consumption expenditures (PCE) inflation—the Federal Reserve’s preferred inflation gauge—by 0.7%. Additionally, the U.S. GDP could take a 0.4% hit, a significant blow given 2024’s 2.8% economic growth.

While Goldman Sachs remains uncertain about the ultimate outcome, its economists believe there’s a strong chance that tariffs on Canada and Mexico will remain temporary. However, with Trump also considering tariffs on the European Union and United Kingdom, the global trade landscape remains volatile.

As uncertainty mounts, investors, corporations, and policymakers alike will be watching closely to see what Trump does next—and how markets react.