Goldman Sachs flags up to 3% hit to its S&P 500 earnings forecasts from Trump's tariffs

Goldman Sachs economists estimate that if the latest trade tariffs announced by U.S. President Donald Trump after assuming office in his second term are sustained, they could take a significant chunk out of Corporate America's bottom line.

Trump imposed hefty new tariffs of 25% over the weekend on imports from Mexico and Canada and 10% against China, saying this could cause "short-term" pain for Americans.

"These announcements have come as a shock to many investors who expected tariffs would only be imposed if trade negotiations failed," the Wall Street brokerage said in a note dated Feb. 2.

Goldman Sachs estimates that every five-percentage-point increase in the tariff rate would lower the S&P 500's earnings per share by roughly 1% to 2%.

As a result, if sustained, the brokerage said the latest tariff announcements could bring about a reduction in its forecasts for the S&P 500's earnings by roughly 2% to 3%, not taking into account any added impact from other trends such as monetary policy uncertainty.

However, it said there is a substantial probability that the tariffs against Canada and Mexico would be temporary.

Its FX analysts believe that tariffs could strengthen the dollar further, although that should have a limited impact on aggregate S&P 500 earnings.

"To the extent investors believe the tariffs will be a short-lived step toward a negotiated settlement, the equity market impact would be smaller," Goldman Sachs said, adding that there could be a bigger impact on equities if the latest announcements are viewed as signs of increasing the odds of additional escalation.

The brokerage previously estimated that a sustained 25% tariff on imports from Canada and Mexico would increase the effective U.S. tariff rate by seven percentage points from the current 3, implying a 0.7% increase in U.S. core PCE prices and a 0.4% hit to the GDP.