New Delhi

Goldman Sachs Group has warned that the implementation of steep tariffs on Chinese imports proposed by former President Donald Trump, could hamper the growth of the US economy and lead to a surge in inflation.

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According to a Bloomberg report, the investment bank's analysts outlined that every percentage point increase in the effective tariff rate could possibly reduce US growth by up to 0.15 per cent, particularly if China responds with retaliatory measures.

Even if the resulting revenue from tariffs is utilised to finance tax cuts, leading to increased spending and investment, the impact on gross domestic product (GDP) would still be huge, with a projected minimum decline of 0.05 per cent.

Goldman Sachs’s analysis suggests that a major escalation in tariffs could elevate core consumer prices by just over 0.1 per cent.

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This increase arises from the likelihood of firms passing on the higher costs of imports to consumers, alongside opportunistic price adjustments by domestic producers.

As a result, heightened tariffs could lead to a temporary surge in inflation lasting for approximately a year, posing additional challenges for policymakers tasked with maintaining price stability and economic growth.

Former President Trump's tenure was marked by an aggressive stance towards trade with China, with the imposition of tariffs on over $300 billion worth of Chinese imports.

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This move triggered retaliatory measures from Beijing, contributing to growing trade tensions between the two economic powerhouses.

While President Joe Biden has largely maintained these tariffs, Trump has indicated intentions to further escalate trade measures if re-elected in November's presidential vote, proposing an increase in China tariffs to at least 60 per cent.

Goldman Sachs’s analysis indicates the magnitude of the impact of Trump's proposed tariff hikes.

The effective tariff rate on Chinese imports increased by 1.5 percentage points between 2017 and 2019, and Trump's proposals could worsen this trend, resulting in far-reaching economic consequences.

Although higher tariffs would boost government revenues by approximately $30 billion per year, or 0.1 per cent, Goldman Sachs’s senior economist Ronnie Walker warned that the overall effect on the economy would likely be negative.

Walker noted that the adverse effects of higher tariffs on GDP are expected to outweigh the benefits, with the decline in real income and consumer spending outweighing any reductions in the trade deficit.

Likewise, the indirect repercussions, such as diminished business sentiment and disruptions in global supply chains, could make the negative economic impact far worse.

(With inputs from Bloomberg)