Goldman Sachs breaks down the impact of US tariffs: Steel mills are celebrating, while the average person's grocery basket is in urgent need.

As the United States launches a new round of heavy tariffs on steel, aluminum, and Chinese goods, targeting the European Union's cars and key imports, the gears of the global supply chain are making a piercing friction sound. Goldman Sachs Group, Inc.'s latest research report, with precise data surgery, has dissected the little-known industry ecology chain in this trade game - some sectors are enjoying the dividends of tariff shields, while more industries are being dragged into a cost inferno. The three-dimensional shock waves of tariff transmission mechanism Goldman Sachs Group, Inc.'s research team quantitatively evaluated the tariff impact by constructing a three-dimensional analysis model including import substitution effects, cost squeeze effects, and retaliatory shock waves. At the import substitution effects level, a 20 percentage point increase in tariffs on steel and aluminum products directly raises import prices, creating a price cushion space for domestic primary metal manufacturing. The native steel smelting industry follows closely, with an effective tariff rate increase of 18 percentage points directly driving output growth by 0.4%-0.5%. Historical data shows that during the 2018-2019 trade war, for every 1% increase in import prices borne by the US manufacturing industry, domestic output increased by 0.06%. In addition, the cost squeeze effect is particularly significant in the secondary processing industry. The production costs of aluminum products, petrochemicals, and pharmaceuticals will increase by 5-6%, mainly due to the dependency of these industries on global procurement for over 30% of intermediate goods. For example, a 10% tariff on key imports in the pharmaceutical industry will directly increase production costs by 1%, while the global raw material supply risk threatens supply chain security. Goldman Sachs Group, Inc.'s calculations show that for industries of this kind, each 1% increase in costs results in a reduction in output of up to 0.25%. However, the threat of retaliatory shock waves is equally significant - following the pattern of the previous trade war, US exported goods face retaliatory tariffs of 0.2 percentage points, and the current export prices of agriculture and mining industries have already incurred pressure to rise by over 2%. Historical data shows that other countries' retaliations against the US are concentrated in agriculture (pressure on soybean exports by 2.5%), mining (1.8% pressure on metal mining), and the automotive industry (1.2%), precisely targeting politically sensitive areas in the US. If the EU imposes a 25% retaliatory tariff on US cars, the additional cost to the automotive manufacturing industry will be $320 million. Structural differences: unique risks of this round of tariffs Compared to the tariffs on China in 2018, the current policies present a significantly upgraded composite risk in terms of industrial interdependence, retaliatory intensity, and supply chain costs, constituting a more destructive composite risk. Firstly, the US Bureau of Economic Analysis Input-Output Tables show that there is a high overlap of key imported goods in this round of tariff lists (such as semiconductors, special steels) with intermediate inputs in domestic manufacturing, reaching up to 58%. This data means that more than half of the taxed goods directly enter US factories in production processes - taking the automotive manufacturing industry as an example, 27% of the required forging aluminum alloys and 15% of industrial chips are imported. Policy uncertainty has led to a doubling of the rate of capital expenditure plans being put on hold in the manufacturing industry to 18%, compared to 9% in the same period in 2018, as companies delay equipment upgrades due to concerns about supply chain disruptions. Secondly, the European Commissions draft trade plan reveals that countermeasures against US car tariffs will adopt a dual constraint of "tariffs + localization rate": in addition to imposing a 12% tariff on US-produced cars (doubling from 6% in 2018), it also requires that the share of local components in vehicles sold in the European market be increased from 55% to 65%. This will reduce the price competitiveness of US car companies in the European market by 1.2 percentage points, directly threatening companies like Ford Motor Company - whose European business profit margin has shrunk from 4.7% in 2023 to 2.1% in the first quarter of 2024. Finally, Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR (TSM.US) 2024 financial report guidance shows that to cope with US semiconductor tariffs, its capital expenditure at the Arizona factory has been increased from the original plan of $40 billion to $48 billion, a 20% increase. This is just the tip of the iceberg of the cost of industry chain restructuring: the US Semiconductor Industry Association estimates that the entire industry needs to invest $1.2 trillion to build a "tariff-immune" supply chain, equivalent to three times the industry's annual average research and development expenditure. More seriously, the delivery period of chip manufacturing equipment due to tariff-induced component shortages has been extended from 18 months to 24 months, which may delay the mass production progress of advanced processes below 3 nanometers by 1-2 years. These three upgrades result in cumulative impacts: the overlap of industrial interdependence amplifies policy injuries, retaliatory tariffs erode export profits, and supply chain restructuring consumes corporate cash flow. Simulations by the US Bureau of Economic Analysis show that the combined effects of the three will expand the drag effect of tariffs on GDP to 2.3 times that of the previous trade war, and the duration of the impact will extend by 40% (from 18 months to 25 months). When companies are forced to simultaneously deal with cost increases, export restrictions, and capacity rebuilding, their risk resilience is approaching a critical point. Specific impacts of tariffs on different industries In this tariff game, the list of beneficiaries seems unusually concise, and the native metal smelting industry is undoubtedly the biggest winner. Thanks to the tariff moat, the industry's output is expected to see a significant growth of 0.5%. Meanwhile, the primary steel processing industry is also expected to receive a boost in output of 0.3%, mainly benefiting from import substitution effects that effectively fill market gaps. Surprisingly, the oil and gas extraction industry is also among the beneficiaries. Despite the increase in crude oil import costs due to tariffs, the domestic market share has increased by 2.1% due to the expansion of tariff barriers, which has partially relieved cost pressures. However, the list of losers is alarming. The secondary metal processing industry, especially the aluminum and steel industries, have become the hardest hit areas in this tariff war. The transmission speed of tariff costs has beenThe increase in costs far exceeds the ability to raise product prices, leading to these industries being deeply in trouble. For example, aluminum window frame manufacturers need to absorb a staggering 6% increase in raw material costs, but the increase in end price is only 2%, undoubtedly putting immense pressure on their profit margins.The automobile manufacturing industry is also in a difficult situation. On one hand, they need to endure a 25% retaliatory tariff from the European Union; on the other hand, the rising cost of steel and aluminum materials further intensifies their operational pressure (Figure 6 details this trend). Calculations from Goldman Sachs Group, Inc. show that the profit per American-made car will shrink by $120 as a result. The pharmaceutical industry is also facing a double blow. On one hand, a 10% key import tariff has caused a sudden 1% increase in production costs; on the other hand, the risk of global raw material supply disruptions poses a serious threat to supply chain security. This series of challenges undoubtedly casts a shadow over the prospects of the pharmaceutical industry. Deep Dive into the Macro Ledger: Systemic Impact behind the 0.04% GDP Cost Although surface data shows that the direct impact of tariffs on the production side seems limited, the industrial production index published by the Federal Reserve Board of the United States shows a limited net decline in industrial output, and the GDP drag calculated by the Bureau of Economic Analysis is only 0.04%. However, research from Goldman Sachs Group, Inc. reveals multiple hidden risks behind this, which are causing systemic impacts on the economy through three transmission channels. Income Erosion Spiral: Low-income families face double pressure The price transmission mechanism triggered by tariffs has led to a significant decrease in real household income. The consumer expenditure model of the US Bureau of Labor Statistics shows that this impact is particularly noticeable in low-income families. Since low-income families spend a higher proportion of their income on necessities such as food and energy, the impact on them is more severe. With the increase in tariffs on imported products from Mexico, prices of some daily consumer goods have soared, further squeezing the consumption capacity of low-income families. Retailers have observed a decrease in the average spending of low-income customers, reflecting a shrinkage in consumer demand. Financial Conditions Tighten: Deterioration of manufacturing financing environment Changes in the financial market are also noteworthy. Bloomberg's US Corporate Bond Index shows a significant widening of credit spreads for BBB-rated industrial bonds, directly raising the financing costs for the manufacturing industry. Equipment leasing rates and costs for revolving credit lines for small and medium-sized enterprises have also increased, putting more pressure on manufacturing enterprises in terms of financing. More critically, with the Federal Reserve maintaining high policy interest rates, many manufacturing companies are facing a significant increase in debt refinancing costs, further exacerbating their financial difficulties. Disrupted Investment Clock: Supply chain uncertainty triggers a wait-and-see attitude The supply chain uncertainty caused by tariffs also has a profound impact on corporate investments. A survey by the National Association of Manufacturers in the US shows that many businesses have delayed their capital expenditure plans due to tariff issues. As one of the hardest-hit industries, the automotive industry has seen a significant extension in the purchasing cycle for factory automation equipment, and the cancellation rate of semiconductor equipment orders has sharply increased. This collective wait-and-see sentiment is forming a negative cycle, with a decline in orders for industrial equipment manufacturers further exacerbating economic uncertainty. There are reinforcing effects between these three transmission channels. Declining income weakens consumer demand, deteriorating corporate revenue expectations, which further leads to tightened financing conditions and a continued lack of investment willingness. Simulations by the Federal Reserve's DSGE model show that if this situation continues to compound for a certain period, it may lower the potential growth rate of GDP and trigger an increase in the unemployment rate. In summary Currently, the key challenge facing policymakers is how to find a dynamic balance between tariff protectionism and maintaining economic resilience. This requires policymakers to not only focus on surface economic data but also deeply understand the complex impact mechanisms behind tariffs and how these mechanisms intertwine and interact, profoundly affecting the economy. But overall, in this tariff storm, there are no real winners - even the steel giants who enjoy temporary benefits will face the long-term pains of global supply chain restructuring. When policy bullets penetrate the industrial body, what is left behind is not just a small negative sign on the data, but a chronic bleeding of the entire economic ecosystem.