How high will he go?
This is a core question investors face on Donald Trump’s trade agenda and the tariffs the incoming president plans to impose on imported products many Americans rely on.
Trump has threatened tariffs high enough to cost the typical family hundreds or even thousands of dollars per year. But many analysts doubt he will go that far during his second term, with Wall Street more sanguine on the outlook for Trump’s trade agenda.
“We think the White House will prefer to avoid the potential economic costs and political risks associated with a universal tariff,” Goldman Sachs analysts wrote in a Dec. 29 research note.
Trump has threatened a 60% tariff on all Chinese imports, but Goldman thinks it will end up far below that, with tariff threats on imports from elsewhere negated by agreements with various trade partners.
During his first presidential term, Trump repeatedly rattled financial markets with his on-again, off-again trade wars.
Stocks sank and soared on news that Trump was threatening new tariffs on imports, then making deals to avert them. In the end, Trump’s first round of tariffs imposed meaningful, yet manageable, costs on the US economy. And they mostly hit industrial goods, not finished consumer products.
Researchers at Bank of America think Trump’s tariffs during his second term in office will be a bit higher, but they point out that vulnerable companies learned from first his trade war, which began in 2018.
“The good news is that risks are mitigated vs. 2018, as companies have been shifting sourcing from China to elsewhere,” BofA explained in its outlook for 2025.
Read more: How do tariffs work, and who really pays them?
The real shocker would be if Trump enacted his full trade war as threatened, which would entail meaningful tariffs on virtually all imports, with nowhere to hide.
In that scenario, trading partners would likely respond with their own tariffs on American exports, making everything more expensive, everywhere. The Peterson Institute for International Economics estimates that Trump’s full tariff plan — a universal tariff of 20% on all imports, plus a 60% levy on Chinese imports — would cost the typical family more than $2,600 per year in higher costs and lost income.
Oxford Economics forecast that a full-blown Trump trade war would cause a short recession and push inflation from the current 2.7% annualized rate back above 3%.
Businesses would face higher costs for machinery and components, while consumers would see higher prices for clothing, pharmaceuticals, food, appliances, and many other things.
