What investors expect from Trump

Survey Scope and Methodology

• Goldman Sachs surveyed over 500 investors via its macro team to gauge assumptions underlying current market pricing regarding the second Trump administration.
• The survey focused on macroeconomically significant areas: immigration, trade, and fiscal policy.
• Investor policy expectations largely align with Goldman Sachs' internal baseline, though the survey highlights specific risks where market sentiment diverges or concentrates anxiety.

Trade and Tariff Policy

• Top Risk: 60% of investors identify a universal 10-20% tariff on all goods from all countries as the most worrying macroeconomic risk for 2025.
• Probability Assessment: Investors assign a 35% probability to a universal tariff, slightly below Goldman Sachs' 40% baseline.
• Baseline Expectation: The modal investor view expects additional tariffs on Chinese imports and autos, similar to Goldman's baseline, but does not consider a universal tariff the most likely outcome.
• Inflation Impact (Baseline): A 3-4 percentage point increase in the effective tariff rate (via China and auto tariffs) is expected to raise the price level by 0.3%–0.4%, pushing inflation peaks to the mid-twos rather than the low-twos.
• Inflation Impact (Universal Tariff): A universal tariff would triple the impact of other tariff policies, raising the price level by approximately 1% and potentially pushing peak inflation slightly above 3%.
• Implementation Note: While tariffs announced on Mexico and Canada (25%) are not yet part of Goldman's baseline, investors view them as a serious risk given the administration's history of unenacted proposals.

Immigration Policy

• Current Context: Net immigration peaked at 3.5–4 million annualized in late 2023 before falling to roughly 1.75 million; this is already roughly half the pre-pandemic annual average of 1 million.
• Goldman Baseline: Net immigration is projected to average 750,000 annually under the new administration.
  • Authorized immigration is expected to remain stable at ~750,000/year.
  • Net unauthorized immigration is expected to decline to near zero (balancing inflows with deportations).
• Investor Consensus: Approximately 50% of polled investors expect net immigration to fall between 500,000 and 1 million; only 6% expect net immigration to turn negative.
• Economic Implication: The reduction in net migration from 2023 levels is significant, though the projected baseline aligns closely with pre-pandemic norms rather than a dramatic collapse.

Fiscal and Tax Policy

• 2017 Tax Cuts: Nearly all investors expect the 2017 tax cuts to be extended.
• Expansion Expectations: Two-thirds of respondents expect full expansion, while one-third expect partial extension.
• Additional Cuts: Goldman Sachs and most investors anticipate modest additional tax cuts totaling approximately 0.2% of GDP ($60 billion) to fulfill campaign promises without triggering severe fiscal concerns.
• Corporate Taxation: While many expect corporate tax cuts, Goldman Sachs views a reduction to 15% as unlikely; a cut to 20% or a manufacturing sector cut to 50% is considered possible.
• Spending Efficiency: Views on the "Department of Government Efficiency" are highly dispersed; 45% expect insignificant or small cuts, while the remainder is split across buckets ranging from $25 billion to over $300 billion.
• Fiscal Constraints: Goldman Sachs argues that high existing deficits (5% of GDP), record debt-to-GDP ratios, and doubled interest rates constrain Congress from enacting large unfunded tax cuts or spending increases.

Growth and Interest Rate Outlook

• Growth Trajectory: Over a two-to-three-year horizon, positive effects (tax cuts) and negative effects (immigration loss, tariffs) are expected to roughly offset, leaving the long-term growth trajectory largely unchanged.
• Timing Discrepancy: Negative growth impacts from immigration and tariffs may materialize faster (via executive authority) than positive impacts from tax cuts (which require Congressional approval), suggesting a potential drag in 2025 with recovery in 2026.
• Inflation Nature: Tariffs are characterized as a one-time price level effect rather than a sustained inflationary trend, provided they do not unsettle inflation expectations.
• Fed Policy Disagreement: Goldman Sachs predicts a dovish Fed (cuts in December and Q1) due to:
  • The small magnitude of tariff-induced inflation (0.3–0.4 bps in baseline).
  • Historical precedent from 2019 where the Fed prioritized growth risks over moderate price-level increases.
• Market vs. Goldman: Market pricing is viewed as "too hawkish," assuming tariffs and lower immigration automatically necessitate higher rates, whereas Goldman believes the risks to growth justify continued easing.
• 2025 Risk Profile: The primary downside risk involves financial conditions tightening due to growth concerns, potentially triggering another episode of Fed rate cuts similar to 2019.