President-elect Donald Trump’s plan to impose a 25% tariff on all goods from Mexico and Canada while hiking the levies on products from China will drive up costs for Americans, Goldman Sachs warned this week.
Economists at the Wall Street bank wrote in a note on Tuesday that the proposal Trump floated the day before would add a tax on 43% of U.S. imports, and could push inflation higher by nearly 1%.
“Using our rule of thumb that every 1 [percentage point] increase in the effective tariff rate would raise core [personal consumption expenditures] PCE by 0.1%, we estimate that the proposed tariff increases would boost core PCE prices by 0.9% if implemented,” the note, written by Goldman Sachs economists Alec Phillips and Ronnie Walker, reads.
The PCE index is the Federal Reserve‘s favored inflation gauge. The Commerce Department reported Wednesday that it rose 0.2% in October from the month before and 2.3% year over year. Core PCE, which excludes volatile food and energy prices, rose 0.3% for the month and increased 2.8% from a year ago.
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The central bank is focusing on the PCE headline figure as it tries to bring back the pace of price increases back to its target of 2%, although policymakers view the core data as a better indicator of inflation.
Trump on Monday said he would issue an executive order upon taking office to charge Mexico and Canada a 25% tariff on all products coming into the United States, as well as additional tariff hikes on China over the flow of illegal immigrants and illicit drugs.
In a Truth Social post, Trump, who takes office on Jan. 20, 2025, said thousands of people were “pouring through” Mexico and Canada “at levels never seen before.”
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“Right now a Caravan coming from Mexico, composed of thousands of people, seems to be unstoppable in its quest to come through our currently Open Border,” he wrote. “On January 20th, as one of my many first Executive Orders, I will sign all necessary documents to charge Mexico and Canada a 25% Tariff on ALL products coming into the United States, and its ridiculous Open Borders.”
“This Tariff will remain in effect until such time as Drugs, in particular Fentanyl, and all Illegal Aliens stop this Invasion of our Country!” he added. “Both Mexico and Canada have the absolute right and power to easily solve this long simmering problem.”
Dating back to his first administration, Trump has long pushed Mexico to be more proactive in preventing the flow of illegal immigrants and illicit drugs into the United States.
In a subsequent post, Trump said he would institute an additional 10% tariff on all Chinese goods being imported into the U.S. over the “massive amounts” of drugs, in particular fentanyl, being smuggled into the U.S.
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Goldman Sachs’ economists noted Trump previously threatened a 25% tariff on Mexico during his first administration, but the announcement on Canada “is somewhat more surprising.”
“Overall, the announcement is more reminiscent of the first Trump administration, when such tariffs were announced as a negotiating tactic, rather than the more systematic tariff policies (e.g., the 10-20% “universal baseline tariff”) Trump frequently discussed during the campaign,” they wrote.
FOX Business’ Eric Revell and Louis Casiano contributed to this report.
