• Goldman Sachs economists warn markets may be mispricing potential tariff impacts set for April 2.
  • While surveys show expectations of 9% reciprocal tariffs, Goldman anticipates rates could double.
  • The bank has downgraded U.S. GDP growth forecasts amid concerns over trade policy headwinds.

Setting up for a negative surprise

Recent media reports suggesting a more conciliatory approach from the Trump administration on upcoming tariffs may be lulling markets into a false sense of security, according to a new analysis from Goldman Sachs. Economists at the firm argue this creates conditions for a negative surprise when reciprocal tariffs take effect April 2.

"The administration has consistently treated tariffs as a negotiating tool," said one Goldman analyst familiar with the research who asked not to be named discussing internal forecasts. "Starting from a position of strength means initial rates could shock markets."

Higher than expected

While a recent Goldman survey of market participants found consensus expectations for a 9% reciprocal tariff rate, the bank's own models suggest the initial implementation could approach double that figure. The tariffs would apply under the International Emergency Economic Powers Act, which the administration has invoked for national security considerations.

Goldman has already adjusted its economic forecasts in anticipation of the trade measures, trimming 2025 U.S. GDP growth projections to 1.7% from 2.4%. The bank estimates the tariffs could shave 0.8 percentage points from growth over the next year while pushing core PCE inflation up to 3% - nearly half a point higher than previous estimates.

Market implications

The S&P 500 remains 8% below its February peak after briefly dipping into correction territory earlier this month. While many Wall Street firms maintain bullish year-end targets - implying 16% upside from current levels - the tariff uncertainty has created a volatile environment for risk assets.

Goldman continues to project two 25-basis-point Fed rate cuts this year, in June and December, though these forecasts remain contingent on how the trade situation develops. "The next two weeks will be critical for setting the tone," the analyst added, noting the firm is monitoring corporate earnings guidance for signs of tariff impacts.