Trump’s Tariff Playbook: All You Need To Know

As we head into the inauguration, let’s take a look at some of policy changes that we can expect from Trump 2.0.

First, the table below from Goldman’s research team, provides a useful summary of the key policy changes expected:

Below, we summarize some thoughts from a weekend call by Goldman chief political strategist, Alec Phillips, discussing the focus be for day 1 action:

1. Immigration (border control actions & deportation planning (although not expecting rapid mass deportation))
2. De-regulation (more specifically, energy de-regulation – leasing federal land, LNG export approvals etc.)

What about tariffs?

• Don’t expect day 1-2 actions here.
• Aside from anything else, Alec thinks Trump will want the first 24-48hrs of headlines and market reaction to be uniformly positive.
• China: Goldman expects fast action on China tariffs, but more like week 1-to-month 1 (rather than day1). The Goldman baseline equates to an average additional +20pp tariff rate (table of baseline views below, note Mex auto’s also in baseline (70% odds)).
• Universal: We have long-had 40% odds of a global all-imports tariff, think that’s roughly right still; but arguably see the skew around this as higher odds of some form of global tariffs, while being less likely on all imports (due to reports like WaPo etc.).
• Timings: Think any early announcement outside China would more likely be on process/launching investigation on import categories etc., rather than actual tariffs themselves. The Mar-Aug tax legislation process, and May-Jun Senate hearings may well include more detail for fiscal revenue plans.

In 2017, Trump began using executive orders immediately upon taking office, reflecting his intent to fulfil key campaign promises (he issued 7 executive orders in his first week in 2017). There is an expectation (according to Polymarket) he could be even more aggressive this time around:

Which policies matter most?

The most consequential policies for markets (particularly RoW) will be those related to trade. This is reflected in client polls:

There is an expectation that some of these trade policies could enacted quickly. For example Polymarket puts a 44% probability of tariffs on China in the next week:

What tariffs could be implemented?
 
During his 2024 presidential campaign, Donald Trump emphasized the use of tariffs as a central component of his economic policy. He advocated for a universal baseline tariff ranging from 10% to 20% on all imports, aiming to protect domestic industries and reduce trade deficits. He also proposed targeted tariffs on specific countries (for example a tariff of up to 60% on Chinese goods) and specific industries (such as autos).

Goldman expects Trump to increase tariff rates on imports from China by average of 20% — less for consumer goods but by as much as 60% for non-consumer goods — and to impose some additional tariffs on auto imports. A universal 10-20% tariff on all imports is a serious risk—they assign a 40% probability—but is not their baseline.

Polling of Goldman’s clients is broadly inline with the above view, with investors assigning an average probability of 35% to a universal tariff:

What impact could this have on Europe?

Goldman estimates a 10% tariff could hit Euro area GDP by 1% and European EPS by 6-7% should the entire impact come in 2025. It is also worth noting that trade uncertainty has a significant negative impact as companies delay investments until the policy outlook becomes clearer. For example, Goldman estimates that a rise in trade policy uncertainty as large as the increase observed in the 2018-19 trade war could lower GDP growth by 0.9% in the Euro area.

Broadly speaking, EU equities (particularly exporters) and EURUSD will trade lower on any tariff announcements – even if they are limited to China/Mexico initially. The trade policy uncertainty as well as potential market share losses (for example Chinese companies dumping goods on Europe) are enough to create significant headwinds for European exporters (particularly Autos and Chemicals industries).

What are the trades?
 
The recent rally (and surprising outperformance relative to the US YTD) in EU equities provides an opportunity to add some downside hedges, according to Goldman’s Anton Tran. Any tariff announcements in the first few weeks of the new Trump administration have the potential to catch investors offside, particularly given the turn around in positioning. After reclaiming short/medium term thresholds in the last few weeks, the Goldman model suggest CTAs are now long EU delta with downside convexity in DAX and SX5E:

First, the most liquid and vanilla:

Buy 21st Mar25 98%/93% PS in DAX for 79bps

Maximum loss is premium spent. Priced indicatively.

• DAX is the most exposed to world trade of the liquid European indices
• It also had the worst 5day returns around tariff announcements in 2018-19

For those looking for a more targeted (and higher beta) custom basket:
 
Buy 21st Mar25 98%/93% PS in GSXETRFS (GS EU Tariff Exposed) for 1.45%

Maximum loss is premium spent. Priced indicatively.

• GSXETRFS is a basket composed of European companies with high US Sales exposure but limited US manufacturing presence/ high % of US exported goods, screened with a qualitative overlay.
• Names are expected to face challenges in the event of implementation of tariffs on US export goods. They had significant beta to tariff announcement days in 2018/19 (see chart below).
• Basket is OW Automobiles & Electrical Equipment names.
• For those who prefer listed product, the SXAP put spread trades at similar premium

Finally, for traders who want even more leverage and play in the exotic space, SX5E/EURUSD down/down dual binaries look interesting:

• Buy 17th Apr25 SX5E
• Maximum loss is premium spent. Priced indicatively.

Much more in the full Goldman tariff note available to pro subs.