Trump’s Tariff Push Unveiled: Goldman Sachs Sees Low Recession Risk

Expert Insights on Economic Resilience Amid Trade Policy Shifts / AFP

As President Donald Trump doubles down on his tariff strategy targeting Canada, Mexico, and China, financial giants like Goldman Sachs and Blackstone remain strikingly optimistic about the U.S. economy’s ability to weather potential storms. David Solomon, CEO of Goldman Sachs Group, has publicly dismissed fears of an impending economic downturn, asserting that the likelihood of a U.S. recession in 2025 remains remarkably slim despite uncertainties tied to global trade policies. Speaking at the Australian Financial Review Business Summit in Sydney, Solomon emphasized that Trump’s aggressive approach aims to address persistent trade imbalances, a move he views as manageable within the broader context of America’s robust economic fundamentals. Meanwhile, Blackstone CEO Steve Schwarzman echoed this sentiment, revealing that none of the 250 companies under his firm’s umbrella anticipate a recession this year, based on their quarterly assessments.

Trump’s tariff rollout, which includes a 25 percent levy on imports from Canada and Mexico effective March 4, 2025, and an additional 10 percent surcharge on Chinese goods, has sparked widespread debate about its implications for both domestic and global markets. Announced during a White House event spotlighting TSMC’s new U.S.-based semiconductor production plans, these measures build on earlier promises to curb illegal immigration, drug trafficking, and perceived trade inequities. Trump has shown little willingness to negotiate, firmly rejecting any wiggle room for Canada or Mexico despite their earlier cooperation on border security, which had delayed the tariffs by a month. This resolute stance has rattled stock and bond markets, fueling concerns among investors about rising volatility and a potential slowdown in worldwide economic growth. Yet, Solomon and Schwarzman argue that the U.S. economy’s underlying strengths, such as resilient consumer spending and vigorous business investment, are poised to offset these pressures.

Solomon elaborated that while Trump’s tariff implementation introduces some unpredictability, it’s unlikely to derail the U.S. economy’s growth trajectory. He pointed to solid consumer expenditure, bolstered by real income gains of approximately 2.5 percent, as a key driver keeping recession risks at bay. Business investment, too, is expected to thrive, propelled by factors like artificial intelligence advancements, favorable tax incentives, and a low-interest-rate environment fostered by anticipated Federal Reserve rate cuts through the first quarter of 2025. Goldman Sachs projects a GDP growth rate of 2.5 percent for the year, surpassing the consensus forecast of 1.9 percent from Bloomberg’s economist survey, a figure that reflects confidence in sustained economic momentum. Schwarzman reinforced this outlook, noting that his firms’ leaders see no signs of an economic contraction, underscoring a widespread belief in corporate America’s adaptability.

The tariff policy itself carries significant weight. The 25 percent duties on Canada and Mexico, alongside the 10 percent hike on Chinese imports, aim to reshape trade dynamics but come with potential downsides. Analysts warn that higher import costs could stoke inflation, with Goldman Sachs estimating a 0.3 to 0.4 percentage point uptick in core PCE inflation due to these measures. Trade relations with North American neighbors and China, which collectively account for over 40 percent of U.S. trade, may strain further if retaliatory tariffs emerge, a scenario already hinted at by Canadian and Mexican officials. Despite these risks, Solomon downplayed their severity, suggesting that the U.S. economy’s diversified strengths can absorb such shocks. He did, however, acknowledge that China faces “considerable headwinds” under this pressure, a view that aligns with Trump’s signing of an executive order formalizing the additional Chinese tariffs.

Delving deeper into the economic forecast, Goldman Sachs highlights several pillars supporting their optimism. Residential investment is projected to climb 3.8 percent, driven by single-family home construction, though multi-family units may lag. Business spending on equipment and innovation, particularly in AI, is expected to surge by more than 5 percent year-over-year by the fourth quarter, thanks to tax breaks and cheaper borrowing costs. The Fed’s anticipated policy of gradual rate reductions, targeting a federal funds rate of 3.25 to 3.5 percent by year-end, should further stimulate activity. Net immigration, pegged at 750,000 annually, remains below pre-pandemic averages but still supports labor market stability, with unemployment expected to dip to 3.9 percent. These factors collectively paint a picture of an economy resilient enough to navigate Trump’s trade gambit.

Critics, however, caution that the tariffs could ripple beyond immediate price hikes. Studies from institutions like the Brookings Institute suggest that the 25 percent levies on Canada and Mexico might harm all three North American economies, disrupting integrated supply chains critical to industries like automotive manufacturing. Similarly, the intensified trade war with China could exacerbate global growth concerns, especially if Beijing responds with countermeasures. Some forecasts, such as Deloitte’s late 2024 analysis, paint a grimmer picture, predicting a GDP growth dip to 1.6 percent in 2025 and a possible 2.1 percent contraction in 2026 if trade and immigration policies tighten further. These dissenting voices highlight a divide in economic outlooks, with pessimists arguing that prolonged trade tensions could erode the very strengths Solomon and Schwarzman champion.

For now, the financial elite’s confidence holds sway, buoyed by tangible data and corporate sentiment. Schwarzman’s survey of 250 firms offers a ground-level perspective that complements Goldman Sachs’ macroeconomic lens, suggesting that businesses are adapting to the tariff landscape without panic. Solomon, meanwhile, frames Trump’s policies as a calculated risk, one that may stir short-term turbulence but falls short of triggering a full-blown downturn. As markets adjust to this new reality, the interplay between trade policy and economic resilience will remain a focal point for investors and policymakers alike. With consumer spending, corporate investment, and monetary policy aligning favorably, the U.S. appears well-equipped to sidestep recession fears, even as the world watches Trump’s tariff experiment unfold.