Tariffs Top Investor Concerns as Trump Begins Second Term, Goldman Sachs Survey Shows

A Goldman Sachs survey reveals that tariffs are the primary concern for investors as President Trump embarks on his second term. While largely agreeing with Goldman Sachs’ predictions on policy changes, investors appear more apprehensive about the potential economic and monetary fallout from Trump's trade actions. The survey of over 500 investors explored their expectations across key policy areas, including immigration, trade, and fiscal policy.

A potential universal tariff of 10-20% on all imported goods was the dominant worry, cited by 60% of respondents. This concern underscores the perceived risk associated with a potential escalation of Trump's trade policies.

Speaking on a podcast, David Mericle, Chief US Economist of Goldman Sachs, explained, "This is a serious proposal and it is a serious risk and that's why people are very focused on it, but it's not the modal view in markets." While neither Goldman Sachs nor the majority of investors expect this drastic measure to materialize, its inclusion in the survey responses highlights the market’s sensitivity to the issue. The average investor assigned a 35% probability to the implementation of a universal tariff, slightly lower than Goldman's 40% estimate.

More specifically, investors anticipate tariffs on Chinese imports and autos, mirroring Goldman Sach's baseline predictions. The survey highlights the market’s unease stemming from Trump's previous unexpected announcement of a 25% tariff on all imports from Mexico and Canada.

However, as seen in Trump's first term, such announcements don't always translate into policy. "There were a lot of things that were proposed at one point during the first Trump administration that didn’t get fully enacted," Mericle cautioned.

Beyond trade, investor expectations largely align with Goldman Sachs’ forecasts. On immigration, the anticipated decline to 750,000 annually echoes Goldman’s predictions, with most believing authorized immigration will remain stable while unauthorized immigration drops towards zero. Regarding fiscal policy, the survey reveals widespread expectation of an extension of the 2017 tax cuts, along with modest additional cuts.

"We suspect that Republicans would be concerned that if they don't deliver on some of the campaign proposals, that would antagonize voters," said Mericle, explaining the rationale behind further tax cuts. However, awareness of fiscal constraints suggests these cuts will likely be smaller than some of Trump's campaign proposals.

Investor views on the new Department of Government Efficiency and its potential for spending cuts are more varied, reflecting the novelty of the initiative.

A key difference between Goldman Sachs and investors is the interpretation of tariff impacts. While investors fear higher inflation and interest rates, Goldman Sachs, citing 2019, believes the Fed might prioritize growth over the "one-time price level effect," of tariffs, as Mericle put it. He cautioned that the market may be oversimplifying the issue, stating, "the risks are a little bit more two-sided than people are appreciating."

Goldman Sachs also maintains a more dovish outlook than current market sentiment, anticipating further Fed rate cuts in the near term. They suggest markets may be underestimating potential negative consequences for the economy and markets, which could prompt further Fed intervention.

"People are under-weighting the potential risks... that could trigger another episode comparable to the 2019 insurance cuts," said Mericle, referring to a period when the Fed cut rates to preempt a potential economic downturn.