Goldman Sachs economists have analyzed the potential economic impacts of a Republican or Democratic victory in the November election, warning that if Donald Trump wins, U.S. GDP could suffer a setback.

In a report released on Tuesday, Goldman Sachs economists, including Alec Phillips, wrote: “We estimate that if Trump wins decisively or if the government is divided, the economic damage from tariffs and stricter immigration policies would outweigh the positive fiscal impact of maintaining most of the tax cuts.”

U.S. GDP significantly impacts the investment market. Strong GDP growth typically boosts corporate profits, leading to higher US stock prices and increased investor confidence. Conversely, weak GDP growth can lower profits and erode market confidence, resulting in stock declines. GDP influences interest rates set by the Federal Reserve; robust growth might lead to higher rates, affecting bond prices and borrowing costs, while weak growth could result in lower rates, benefiting both stocks and bonds.
 

U.S. GDP could be dragged down

Goldman Sachs projects that under such a scenario, U.S. GDP could be dragged down by as much as 0.5% in the second half of next year, with the impact diminishing by 2026. They assume that under Trump, tariffs on China would increase by 20%, higher tariffs would be imposed on cars from Mexico and the EU, and immigration would be reduced, which would slow labor force growth.

The economists also noted that if Vice President Kamala Harris wins and the Democrats gain control of both houses of Congress, “new spending and expanded middle-class tax credits would slightly exceed the negative impact of higher corporate tax rates on investment, resulting in only a modest boost to average GDP growth in 2025-2026.”

Phillips and his colleagues added that if Harris wins with a divided government where the Republicans control at least one chamber of Congress, “the policy impact would be small and neutral.”

Trump’s campaign responded by stating that forecasters failed to anticipate the economic rebound following his 2016 victory. “If these Wall Street elites want their new predictions to be taken seriously, they should wisely review past records and acknowledge the shortcomings of their previous work,” said Brian Hughes, a senior advisor to the campaign.
 

Economic policies of the US presidential candidates

Joe Costello, a spokesperson for the Harris campaign, said, “Experts across the spectrum—right, left, and center—believe Trump could trigger an economic disaster,” citing concerns over rising unemployment, explosive inflation, skyrocketing debt, and a potential recession.

Goldman Sachs expects that under a Harris administration, which has already tightened immigration policies, new immigrant numbers will slow to 1.5 million annually, still above the pre-pandemic average of around 1 million. In contrast, a Trump administration might lead to a larger slowdown, potentially down to 1.25 million or even 750,000 annually if the Republicans control Congress and increase enforcement resources. Many economists believe that the recent surge in immigration, amid high interest rates, has contributed to strong job growth in the U.S.

Goldman Sachs’ economists wrote: “We estimate that if Harris wins, the contribution of immigration to labor force growth will be about 10,000 per month higher than if Trump wins with a divided government, and about 30,000 per month higher than if the Republicans win decisively.”

On trade policy, Goldman Sachs expects that if Harris wins, tariffs are unlikely to be further increased. The bank’s economists wrote that Trump might raise tariffs on China, the EU, and Mexico, leading to a spike in inflation, with peak effects on favored Fed price indicators estimated at 30 to 40 basis points. An additional 10% universal tariff proposed by Republican candidates would have a larger impact, though it would take longer to materialize.
 

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