12 June 2025 | 9:22AM EDT US Daily: A Slightly Smaller Tariff Effect (Mericle) Jan Hatzius +1(212)902-0394 | jan.hatzius@gs.com Goldman Sachs & Co. LLC Alec Phillips +1(202)637-3746 | alec.phillips@gs.com Goldman Sachs & Co. LLC David Mericle +1(212)357-2619 | david.mericle@gs.com Goldman Sachs & Co. LLC Ronnie Walker +1(917)343-4543 | ronnie.walker@gs.com Goldman Sachs & Co. LLC Manuel Abecasis +1(212)902-8357 | manuel.abecasis@gs.com Goldman Sachs & Co. LLC Elsie Peng +1(212)357-3137 | elsie.peng@gs.com G ...

Investment Rating - The report does not explicitly state an investment rating for the industry Core Insights - The US has raised "reciprocal tariffs" on China to 125%, with China retaliating with similar tariff hikes, leading to significant trade tensions [2][3] - Approximately 60% of US imports from China are now subject to tariff hikes of 145%, which includes both the new reciprocal tariffs and previously implemented fentanyl tariffs [3][4] - The report anticipates a substantial decline in China's exports to the US, projecting a decrease of two-thirds in the coming quarters and an overall export decline of 10% in USD terms for 2025 [8][11] - A broad fiscal expansion of 1.5-2 percentage points of GDP is expected from China to support the economy amid these challenges [9][13] - The GDP growth forecast for China has been downgraded to 3.4% for 2025 and 3% for 2026, reflecting the adverse effects of tariff shocks [11][17] Summary by Sections Tariff Impact - The US has implemented significant tariff hikes on various goods, with the latest exemptions for electronics adding an estimated $64 billion of US imports from China to the exempted list [3][4] - The report suggests that ongoing tariff negotiations may not lead to immediate reductions in the current tariff levels [7] Economic Forecast - The report estimates that the tariff hikes will drag down China's GDP growth by more than 2 percentage points, with a notable impact on domestic investment and consumption [8][11] - The expected inflation in China is projected to be negative in both 2025 and 2026 due to reduced external demand and domestic price pressures [11] Currency Outlook - The report does not foresee significant movements in the USDCNY exchange rate, predicting it to trade around 7.5 by the end of 2025 [12][17]

Investment Rating - The report does not explicitly state an investment rating for the industry Core Insights - The US has raised reciprocal tariffs on China to 125%, with additional tariffs related to fentanyl control, leading to a total of 145% on certain imports [2][3] - China has retaliated with similar tariff hikes, also reaching 125% on US imports [2][3] - Approximately 60% of US imports from China are affected by the new tariff hikes, while the remaining imports face lower tariff rates [3] - The report anticipates a significant decline in China's exports to the US, estimating a reduction of two-thirds in the coming quarters and an overall export decline of 10% in USD terms for 2025 [8][12] Summary by Sections Tariff Impact - The report outlines the timeline and magnitude of tariff increases, indicating a complex landscape for US-China trade relations [4][5][7] - It suggests that ongoing negotiations may not lead to immediate tariff rollbacks, maintaining the current baseline scenario of high tariffs [7] Economic Forecasts - The GDP growth forecast for China has been downgraded to 3.4% for 2025 and 3% for 2026, reflecting the adverse effects of tariff shocks [12] - The report predicts a more than 2 percentage points drag on China's GDP growth due to tariffs [8] Policy Measures - The report anticipates that China will implement new policy measures to support its economy, including a fiscal expansion of 1.5-2 percentage points of GDP [9][14] - It expects monetary policy adjustments, including potential cuts to policy rates and reserve requirement ratios [9] Currency Outlook - The report does not foresee significant movements in the USDCNY exchange rate, projecting it to trade around 7.5 by the end of 2025 [13][16]