American investment bank Goldman Sachs has revised its expectation for the outcome of the trade war between the United States and China following the recent developments. Goldman increased its expectations for an escalation to the trade wars, predicting a 60 percent chance that the US will be placing an additional 10 percent tariff hike on Chinese imports.
The bank increased its expectations from 40 percent following the implementation of President Donald Trump's threat of raising the tariff rates for $200 billion worth of Chinese goods.
The tariff rates were increased from 10 percent to 25 percent. Trump also announced that the country would be imposing a similar hike on an additional $300 billion worth of Chinese imports.
Apart from China, Goldman also revised its predictions for a possible tariff hike for products being imported from Mexico. The bank increased its prediction to a 70 percent chance that Trump's administration would go ahead and impose a 5 percent tariff on Mexican good. The bank also predicted a 50 percent chance that the tariff would be increased to 10 percent.
Its predictions for the Mexican tariffs came right after Trump threatened Mexico of possible tariffs if they do not immediately take action to curb the flow of migrants to the US-Mexican border. Trump mentioned that the US would be imposing a 5 percent tariff on all imports that will start on June 10 if Mexico does not comply with its demands.
Both China and Mexico are currently exploring possible deals with the United States to remove the tariffs. However, China is now much more unwilling to negotiate and has already retaliated with its own set of increased tariff rates for US goods.
Chinese officials also recently stated that they are unwilling to be forced into a deal by the US' actions and that they are prepared to fight if necessary. Analysts believe that if a deal could be struck, it might not happen very soon.
Given the bank's expectations of an escalation in the ongoing trade war, Goldman analysts have lowered their US GDP forecasts for the year. The GDP forecast for the second half of the year has been lowered by 0.5 percent to 2 percent. The bank predicts that the tariff may eventually be removed sometime next year as the countries negotiate a deal.
This would result in a moderate rebound across the board that could eventually lead to economic stabilization. Another effect of the bank's raised expectations for an escalation in the trade war is its increased subjective probabilities for interest cuts from the Federal Reserve.
