- Fears that Trump’s tariff hikes would stoke long-term economic volatility have eased, with Goldman Sachs now expecting a one-time rise in prices rather than a sustained surge. As markets shrug off the Aug. 1 deadline, analysts warn that investor calm could embolden the White House to follow through—especially if economic data remains strong.
When Treasury Secretary Scott Bessent first described tariffs as the “dog that didn’t bark,” analysts weren’t convinced. Many believed that businesses would pass through hikes to consumers—as various datasets confirmed—thus pushing up inflation.
Yet in the months since President Trump’s “Liberation Day” in early April, those fears have cooled.
Whether or not that anxiety has dissipated to the point of “complacency,” as JPMorgan’s Jamie Dimon fears, remains to be seen. But with less than a fortnight to go until Aug. 1 (the deadline expressed in Trump’s tariff letters) analysts are either expecting another delay or are pricing in a singular hike to inflation as opposed to a continual rise.
Goldman Sachs, for example, wrote late last night it had changed several of its base-case trade policy assumptions. Jan Hatzius, Goldman’s chief economist, wrote in a note on Monday seen by Fortune: “While we don’t expect the ‘letter tariffs’ scheduled for August 1 to take effect, we now build in an increase in the ‘reciprocal’ tariff rate from 10% to 15%.”
The threatened pharmacy tariffs of 25%, he added, are likely to be delayed until after the 2026 midterms.
That increase to the overall tariff rate would come on top of the 10% the Trump administration already introduced earlier this year, when the White House rolled back on the sharpest end of its economic sanctions but still orchestrated a import raise worth billions.
Previously, Goldman had expected the effective tariff rate to sit at around 14% in 2025, but now see it sitting nearer 20% by next year. Of course, this doesn’t fit with the Treasury secretary’s notion that tariffs will have little impact on the economy, but rather that the outcome will not be as sharp as analysts had feared in the early days of Trump 2.0.
Hatzius framed the tariff hit to inflation as a one-off hike as opposed to an issue which will continue to trickle through for months to come. This would be welcome news to Fed Chair Jerome Powell, for example, who thus far has held off a cut to the base rate for fears about how the Oval Office’s policies may impact their goal of 2% inflation.
He wrote: “One reason why President Trump might raise tariffs further is that the costs of the trade war have been smaller than anticipated so far. At least as far as inflation is concerned, however, we think this mostly reflects lags related to large-scale inventory building before the tariffs hit. For the earliest Trump tariffs, these lags have now run their course.”
Per Goldman’s estimates, 60% of the ramifications from the tariffs implemented in February had worked their way through the economy by June, raising core inflation by 0.2%. A further 1.2% raise is yet to come, added Hatzius, putting PCE (personal consumption expenditures) over 3%.
While the hike will be painful for real disposable income, Goldman added, it still expects the tariff fallout will exhibit as a “one-time price level shift akin to a VAT hike” as opposed to a continual erosion of spending power.
How much does Aug. 1 matter?
With the S&P 500 up some 4.6% this month, it seems markets are far less sensitive to the White House’s back-and-forth, perhaps relying on the “TACO trade” (Trump Always Chickens Out) to live on.
This in itself presents a problem, writes Deutsche Bank’s Henry Allen in a note shared with Fortune recently. After all, if the economy is faring well then it may give the president the confidence to push ahead with his threats. “On tariffs, it’s clear that markets aren’t pricing in the proposed August 1 rates,” Allen writes. “But the paradox is that as markets discount the tariffs and perform strongly, that’s actually making the higher tariffs more likely as the administration grows in confidence.”
Indeed, as Macquarie strategists Thierry Wizman and Gareth Berry wrote in a note Monday, even if Trump pushes ahead with his agenda, it doesn’t mark the end of the story. They added: “While the August 1 date is critical insofar as it will help prove out whether U.S. President Donald Trump ‘chickens out’ again, it is not a ‘point of no return,’ insofar as negotiations will likely continue beyond that date even if new tariff rates are imposed (e.g., 30% for Europe).
“It is because August 1 is unlikely to be a ‘point of no return’ that stock markets have been largely unfazed by the approach of August 1, we believe. Nothing that ‘happens’ on August 1 is necessarily permanent, so long as the U.S. administration remains willing to talk, as was indicated in Trump’s letters from two weeks ago.”
