What will rapidly shifting tariff policies ultimately mean for the global economy and markets?

I'm Alison Nathan, and this is Goldman Sachs Exchanges. Today I'm joined again by Jan Hotsias,

head of Goldman Sachs Research and the firm's chief economist, and Dominic Wilson, senior advisor

in the global markets research group. Jan, Dom, it's great to have you back on exchanges.

Thank you. Thanks. Yon, it's great to have you back on exchanges. Thank you. Thanks.

Jan, it's been a week for the ages, and so much has happened since we last sat down in

mid-February. At that time, you believed that tailwinds in the economy were more likely to

trump tariff headwinds, but we of course since have gotten what can only be described

as a seismic shift in tariff policy from the Trump administration that companies and investors

are now grappling with. So first, catch us up on the implications of those shifts for your

economic outlook. Are we facing recession at this point?

Yeah, I mean, if we go back two or three months, we thought coming into 2025 that tailwinds

would probably trump tariffs. That was the title of our outlook. And that was when we thought tariffs would

rise by maybe four percentage points or so if you take the average US tariff rate. Now it's much

higher than that. And we now think that tariffs will trump the tailwinds. And we have a much more cautious view on the U.S. economic growth outlook.

Tariffs basically weigh on growth via three main channels.

Number one, you get a price increase, which eats into households real income, and thereby cuts consumption. Number two, tariff increases

tend to tighten financial conditions. Obviously, we've seen that in spades over the last week

and a half. And then number three, uncertainty about trade policy, like other types of uncertainty, make it less advantageous for firms to make

capital investment decisions. So they sit on their hands and that weighs on growth as well.

Now, how big are these effects? Our estimate, and this is very rough, but our estimate is that

a one percentage point increase in the average

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