Goldman Sachs Analysts Predict Economic Impact of Potential Trump Presidency

Analysts from Goldman Sachs have issued a warning that former President Donald Trump’s return to office and the implementation of his proposed economic policies could result in a decline in U.S. economic performance. In particular, they highlighted that Trump’s plans to impose stricter immigration policies and levy new tariffs on Chinese goods could significantly reduce the country’s gross domestic product (GDP) growth.

Goldman Sachs’ forecast suggests that if Trump wins the 2024 election, the U.S. economy could experience a reduction in GDP growth by about half a percentage point in the latter half of 2025. However, the report also indicated that the economy could see some recovery the following year. “We estimate that if Trump wins in a sweep or with divided government, the hit to growth from tariffs and tighter immigration policy would outweigh the positive fiscal impulse,” Goldman analysts wrote in their analysis on Tuesday.

According to their predictions, Trump’s economic policies, particularly those focused on tariffs and immigration, would have a greater negative impact on growth than the potential benefits from any fiscal stimulus measures his administration might introduce. The Goldman analysts were cautious about how these proposals could affect broader economic conditions, particularly in relation to international trade and labor markets.

Trump’s proposal to increase tariffs on Chinese imports, aimed at reducing America’s trade deficit, was a key point in his economic agenda during his previous tenure. However, while such measures may aim to protect American industries, they also risk escalating trade tensions with China, one of the United States’ largest trading partners. These tariffs could lead to increased costs for U.S. consumers and businesses, which might slow down economic growth.

Moreover, the report raised concerns about Trump’s intention to tighten immigration laws. Restrictive immigration policies could limit the availability of labor, particularly in industries that heavily rely on immigrant workers, such as agriculture, construction, and healthcare. A shortage of workers in these sectors could disrupt supply chains and drive up wages, leading to inflationary pressures.

On the other hand, Goldman Sachs analysts provided a contrasting economic outlook in the event of a Harris presidency, particularly if Vice President Kamala Harris were to win the 2024 election with Democratic control of Congress. They predicted that her economic policies could lead to more favorable growth outcomes, with spending initiatives and tax credits acting as significant drivers of economic expansion.

Goldman analysts argued that Harris’s proposed policies would “more than offset” the negative impact of a higher corporate income tax rate, which she has suggested raising to 28 percent. The analysts believe that these spending initiatives would stimulate the economy by boosting investments in infrastructure, education, and healthcare, among other areas.

The corporate tax rate has been a contentious issue in U.S. politics. Trump’s 2017 Tax Cuts and Jobs Act reduced the corporate tax rate from 35 percent to 21 percent, a move that was designed to spur business investment and economic growth. However, Harris, like President Biden, has called for the corporate tax rate to be increased to 28 percent to fund social programs and reduce the national deficit. Biden’s recent budget proposal also included this tax increase as a way to balance the government’s fiscal policies.

In a scenario where Harris wins the presidency but Congress remains divided between Republicans and Democrats, Goldman Sachs predicted a more neutral outcome for the economy. In this case, policy changes would likely be minimal, resulting in little to no effect on GDP growth. “Policy changes would be small and have a neutral effect on GDP,” the Goldman report stated.

The Harris-Walz campaign expressed optimism about their economic vision. Joseph Costello, a spokesperson for the Harris-Walz campaign, highlighted the positive impact their policies could have on middle-class families and small businesses. “Vice President Harris has a positive vision to strengthen the economy by building up the middle class, cutting taxes and lowering costs for working families and small businesses, and creating opportunities for all Americans to get ahead. On the economy, the choice could not be any more clear this November,” Costello said.

Despite the attention on Trump’s and Harris’s policies, the Trump campaign has yet to provide a response to Goldman Sachs’ predictions. The analysis of the economic outlook for a potential Trump presidency comes at a time when the country is already facing numerous challenges, including inflation, labor shortages, and fluctuating job market conditions.

In addition to concerns about the long-term economic policies of the next administration, Goldman Sachs also pointed out the potential impact of short-term monetary policy changes under the Federal Reserve. The Federal Reserve is widely expected to lower interest rates in September, marking the first rate cut in over five years. According to the CME Fed Watch tool, as of Wednesday, there is a 57 percent chance of a quarter-point rate cut.

A report from the U.S. Labor Department released on Wednesday, which showed weaker-than-expected job openings, has increased the likelihood of a more significant rate cut. However, most analysts believe that a quarter-point reduction remains the most probable scenario.

This news follows the release of the July jobs report, which revealed a slight increase in unemployment, rising from 4.1 percent to 4.3 percent. While this uptick is modest, it has raised concerns about the overall strength of the labor market. A slowdown in hiring, combined with ongoing inflationary pressures, could influence the Federal Reserve’s decisions in the coming months.

Further complicating the economic picture is the ongoing behavior of bond markets, where yield curves are beginning to show signs of renormalization. Yield curves, which plot the interest rates of bonds of varying maturities, have been inverted for the past two years. An inverted yield curve, where short-term bonds yield more than long-term bonds, is often seen as a signal of an impending recession. However, the bond market is now showing signs that this inversion may be coming to an end, with the 10-year Treasury yield starting to pay out more than the 2-year Treasury yield.

Despite these warning signs, a recession has yet to materialize, leaving some market analysts cautiously optimistic. Nevertheless, the outcome of the 2024 election could significantly shape the future economic landscape, as the next president will inherit an economy facing numerous challenges, from inflation to labor shortages to international trade tensions.

As the election approaches, voters will have a stark choice between two very different economic visions. While Trump’s policies focus on protecting American industries through tariffs and reducing immigration, Harris has positioned herself as a champion of the middle class, advocating for higher corporate taxes and increased government spending to stimulate economic growth.

Ultimately, the direction of the U.S. economy in the coming years will depend not only on the policies of the next president but also on global economic conditions and domestic market dynamics. As Goldman Sachs analysts have shown, the economic consequences of the 2024 election could be significant, making it a critical issue for both policymakers and voters alike.