Goldman Sachs' chief economist Jan Hatzius recently stated that former US President Trump's comprehensive tariff plan may lead to inflation in the country, prompting the Fed to raise interest rates by about five times. Hatzius expects that Trump's tariff proposals could increase the average tariff rate in the United States by 16 percentage points to nearly 20%, which would be the highest level since World War II. This could lead to retaliatory tariffs around the world, risking a trade war. The assumption here is that all other countries will take similar steps and use tariff revenues for tax reductions. In this case, the uncertainty of the trade policy will be pushed to the peak level during Trump's first term as president.

Hatzius predicts that Trump's tariff proposal may raise the average tariff rate in the United States by 16 percentage points to nearly 20%, which would be the highest level since World War II. This could lead to retaliatory tariffs around the world, which could threaten a trade war. The assumption here is that all other countries will take similar steps and use tariff revenues for tax reductions. In this case, the uncertainty of the trade policy will be pushed to the peak level during Trump's first term as president. In the case of no trade war, the basic point of view of Goldman Sachs is that the European Central Bank and the Fed will cut policy rates by 150-200 basis points in the next two years. However, if there is a global trade war:

Hatzius stated that, in the absence of a trade war, Goldman Sachs' basic view is that the European Central Bank and the Fed will cut policy rates by 150-200 basis points in the next two years. However, if there is a global trade war: Regarding the impact on inflation, the US inflation rate is expected to rise by 1.1 percentage points, while Europe's inflation rate is expected to only rise slightly by 0.1 percentage points. Regarding the impact on economic activity, the Eurozone GDP is expected to be impacted by 1%, while the United States will only be impacted by 0.5 percentage points. This asymmetry reflects the uncertainty of trade policy and has a greater negative impact on investment in the Eurozone than in the United States. Using the above figures, Goldman Sachs calculated the impact on monetary policy using the Taylor rule as a standard, resulting in a greater divergence in monetary policy: The net effect on US monetary policy is hawkish, reaching 130 basis points, that is, the interest rate will rise by 130 basis points because of high inflation. For monetary policy, the hawkish inflation effect is more obvious than the dovish growth effect. In the Eurozone, the overall impact is slightly dovish, reaching -40 basis points, that is, the interest rate will decrease by 40 basis points because of the drag on economic growth. For monetary policy, the dovish growth effect is more obvious than the hawkish inflation effect.

Regarding the impact on inflation, the US inflation rate is expected to rise by 1.1 percentage points, while Europe's inflation rate is expected to only rise slightly by 0.1 percentage points.

Regarding the impact on economic activity, the Eurozone GDP is expected to be impacted by 1%, while the United States will only be impacted by 0.5 percentage points. This asymmetry reflects the uncertainty of trade policy and has a greater negative impact on investment in the Eurozone than in the United States.

Using the above figures, Goldman Sachs calculated the impact on monetary policy using the Taylor rule as a standard, resulting in a greater divergence in monetary policy:

The net effect on US monetary policy is hawkish, reaching 130 basis points, that is, the interest rate will rise by 130 basis points because of high inflation. For monetary policy, the hawkish inflation effect is more obvious than the dovish growth effect.

In the Eurozone, the overall impact is slightly dovish, reaching -40 basis points, that is, the interest rate will decrease by 40 basis points because of the drag on economic growth. For monetary policy, the dovish growth effect is more obvious than the hawkish inflation effect.

Prior to June, the Wall Street Log website mentioned that Trump proposed the idea of ​​a "full tariff" federal revenue system, which is large enough to replace income tax. Trump considered imposing tariffs of at least 10% on all goods imported into the United States from other countries if he is re-elected.

Analysis points out that Trump has always supported raising tariffs to protect domestic industry and has long supported tax cuts for companies. The full tariff policy combines these two positions and maximizes them, reversing the economic policy that has encouraged free trade and required higher-income families to pay higher tax rates than the middle class for more than 100 years. Such policy orientation seems to be a return to the financial policies of the 19th century.

Recently, with the increasing probability of Trump winning, Trump's deal has returned, and the market has undergone a significant transformation: the US bond curve has become steeper, oil prices have risen, US stocks have risen, and volatility has risen.

Economist Nouriel Roubini, known as the "Dr. Doom," has warned that Trump's re-election may trigger a trade war, which could hurt the stock market.

Roubini's main points are as follows:

Protectionism will gradually lead to higher inflation, which is worrisome and certainly so for the bond market. Escalating trade frictions or a full-scale trade war pose a threat to the stock market.

Any tariff is a retrograde form of taxation that increases import prices and leads to inflation.

The Trump administration may try to force some countries to accept dollar depreciation. But in terms of the impact on inflation, this is similar to universal tariffs.

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