Goldman Sachs sees US tariff impact to be 'short-lived', but outlook 'uncertain'

"Our economics team previously estimated that a sustained 25% tariff on imports from Canada and Mexico would increase the effective US tariff rate by 7 percentage points, implying a 0.7% increase in US core PCE prices and a 0.4% hit to GDP," added the Goldman Sachs note.

Even as Asian markets react negatively to the news of additional tariffs by US President Trump on Canada and Mexico on February 3, Goldman Sachs in a recent note said it does not see the measures imposed by America to last long, calling them likely 'short-lived'.

".. we think it is more likely that the tariffs will be temporary but the outlook is unclear," said Goldman Sachs, adding that White House has set general conditions for their removal.

"Our economics team previously estimated that a sustained 25% tariff on imports from Canada and Mexico would increase the effective US tariff rate by 7 percentage points, implying a 0.7% increase in US core PCE prices and a 0.4% hit to GDP," added the Goldman Sachs note.

Goldman Sachs in the past has said that a 10% US tariff could push up inflation above 3% as well as have a weigh on growth. A recent JPMorgan note had pointed out that the burden of higher tariffs would lead to 'reduction in consumer pricing power'.

Trump has vowed to keep the tariffs in place until what he calls a national emergency over fentanyl, a deadly opioid, and illegal immigration to America ends. China's reaction has been muted, and the country has hinted at challenging the tariffs at the World Trade Organization, but has hinted at being open for talks with the United States.

"Canadian oil tariffs would risk unpopular, if temporary, gasoline price increases in the US Midwest," said Goldman Sachs analysts said in a note. Nearly all of Canada’s 4 million barrel of crude exports go into America, and about 500,000 barrels comes from Mexico. President Trump on Sunday said that the 25% tariff on imports from Mexico and Canada could cause some pain, but it will be worth it.

Trump tariffs have led to a surge in the US Dollar Index by almost a percent, sending it above 109 levels. The Canadian Dollar has hit its lowest since 2003, while the Euro has fallen to its lowest since November 2022. Asian markets are lower by over 2%, while Brent Crude prices were above $76 per barrel soon after the decision.