A STEEP increase in US tariffs on Chinese imports – which presidential candidate Donald Trump has vowed to impose if he is elected – would hobble the domestic economy and push inflation up, according to Goldman Sachs Group. Every percentage point increase in the effective tariff rate would reduce US growth by as much as 0.15 per cent if China retaliates, Goldman analysts said in a note on Saturday (Apr 6). Even if Trump used the resulting revenue to finance tax cuts that would spur spending and investment, the hit to gross domestic product would still be a minimum 0.05 per cent. It also would raise core consumer prices by just over 0.1 per cent because firms would pass on the higher cost of imports to consumers while some domestic producers would opportunistically lift their prices, and the result would be higher inflation for a year, Goldman said. Trump imposed tariffs of up to 25 per cent on more than US$300 billion of Chinese imports while he was in the White House – triggering a retaliation from Beijing – and President Joe Biden has largely kept them in place. The two men are set to fight a rematch in November’s presidential vote and they are vying to appear tougher on China. Trump has floated an increase in China tariffs to at least 60 per cent if he is elected. The effective tariff rate across Chinese imports increased by 1.5 percentage points between 2017 and 2019, and Trump’s proposals could boost it “much more substantially”, according to Goldman. Even though each percentage-point rise in China tariffs would lift government revenues by about US$30 billion per year, or 0.1 per cent, the overall effect would not be positive for the economy, according to senior economist Ronnie Walker. “The direct impact of higher tariffs on GDP is likely to be modestly negative, with the hit to real income and consumer spending from higher prices outweighing the decline in the trade deficit,” Walker wrote in the report. There are also uncertain indirect effects, such as a hit to business sentiment and supply-chain upheaval, that could heighten the negative effect, he said. BLOOMBERG