Are Investors Complacent?

President Trump's sizable tariffs are still on the table, but markets seem very relaxed about this landmark change in global trade policy, policy, and the economic data seems to be hanging in. So why is that? And is there a risk that investors have become too complacent? I'm Alison Nathan, and this is Goldman Sachs Exchanges. Today, I'm joined by Jan Hatzius, head of Goldman Sachs Research and the firm's chief economist, and Dominic Wilson, senior adviser in the Global Markets Research Group. Jan, Dom, it's great to have you back on exchanges again. Thank

you. Looking

forward to it.

Jan, as I just said, the markets seem very complacent about tariff risk at this point, but a lot is still happening around them. So first, just catch us up. What's been implemented so far on the tariff front and what do you expect to be implemented ahead?

So far, we've seen about a nine percentage point increase in the average effective tariff rate on all US imports, which is composed of 30% China tariffs, 25% Canada Mexico, ex USMCA, 10% on a broad range of countries, and then some sector specific tariffs, especially on autos and on steel and aluminum. We're expecting that nine percentage point increase to go to something like 14 by the end of the year. And we've been in that general vicinity for several months at this point. It really hasn't changed very much, although the details keep changing and are probably going to continue to change. Ou

So the key question remains, what will this all mean for inflation? We got another round of US inflation data this week, and it was yet again somewhat cooler than expected, and that's been the case for several months now. So will we see a tariff impact on inflation? And if so, when will we see it?

Yeah. So I'd say on the latest inflation data, on balance, I think they were in line. Where if I look at where our estimate is for core PCE in June, which is what all of these CPI, PPI, import price numbers feed into, we're at 25 basis points. That's basically what we had coming into this set of reports. I do think that there's actually more evidence of pass through into consumer prices in specific categories that you could reasonably expect to already have been affected by tariff increases on China, the first rounds of China, tariffs that have been in place for a while now, The steel and alum

there's also some impact on growth from these tariffs. What are your expectations at this point? Some

of the ways in which tariffs affect growth have proven to be, I think, definitely less dramatic. We're seeing less of an uncertainty impact that's clearly visible in the data. And in fact, some of the uncertainty measures have come down. Of course, so far, we haven't seen a huge real income hit either because we're still in the early stages of the past two. So you could say that what we're learning here is that this is not such a big deal. On the other hand, actual growth in the 2025 actually has been pretty soft. Right now, we're estimating first half GDP growth only 1.2% on average. You have