How Goldman Sachs Is Thinking About Tariffs

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With its push to disrupt global trade, the Trump administration has insisted its playing the long game. The president argues that eventually tariffs on some of the US's largest trading partners will usher in a new era for American manufacturing, they'll raise money for proposed tax cuts, and they'll give the entire US economy a boost. The juries still out on that long term vision, but the short term impacts are already starting to make themselves clear in whip sawing

When there's a high level of uncertainty, people titanervelt, they invest less, they spend less, and all those things slow down growth.

David Solomon is the CEO of Goldman Sachs, the behemoth investment bank and financial services company that oversees three point one trillion dollars in assets globally. Solomon sat down with Bloomberg's editor at large, Francine Lacroix earlier this week in Oslo during the Norwegian Sovereign Wealth Fund's annual investment Conference.

We have to start with Trump policies. It's been one hundred days since the inauguration.

Like where are we? We've seen a lot of volatility. How would you describe this moment in time?

Four one hundred days in And I would say there are a handful of policy initiatives that are being put forward. Some of them certainly are very very interesting and intreating to the market. But what's been put forward on trade so far has raised the level of uncertainty very significantly.

And so I'd say, one hundred days in, we need.

Another one hundred days to kind of see where the policy directives are going and to try to have a better understanding of how what's talked about so far, particularly with respect to trade, is ultimately going to be put in place, how it's going to play out. But the policy actions to date have raised the level of uncertainty to a degree that I don't think is healthy for investment and growth, and I think it's going to be important that we get more clarity on the direction of travel from here.

So if you look at markets, there's been a sum off, a pretty dramatic sell off in the US assets.

It's somewhat come back, but hasn't been too drastic.

Well, it's not just for the markets, you know, first and foremost, it's.

For businesses, it's for individuals. You know.

One of the things that has happened over the course of the first one hundred days is that the perspective on forward growth has been decreased.

And so when you decrease.

That perspective on forward growth, that changes investor's perspective of equity values. So what we've seen is a relatively orderly kind of repricing of equity assets. And what's unusual on the context of this with pricing is generally, when you have that kind of equity market stress, people run to treasuries or safe haven. But here we're seeing a slightly different rotation because of the.

Nature of the policy.

We've seen a weakening of the dollar, you know, at the margin, and so that's been different than I think what people expected.

Our treasury is still safe haven.

I think US treasuries absolutely are safe, but you can reprice the safe of an asset as people's preferences shift slightly, you know. I think at the margin, we've had for a long period of time a trend of capital flows into US assets, and you know, at the.

Margin, people are looking at their portfolio.

Constructions and saying, given the uncertainty that's been raised in the US, do we want to rebalance that a little bit? And I'd say the rebalancing so far has been at the margin.

Investors are asking a risk premium, pretty hefty risk premium to own US assets at the moment. Even if there's a reversal in terms of terrorists, does it come back to what it was like or.

Is there a permanent change.

Well, I'm not sure that they're asking a pretty hefty risk premium. They're certainly asking a different premium than were we were three months ago.

But I think everything's.

Got to be looked at, you know, in a broader perspective. The moves have been real in terms of the reprice of the equities, particularly some of the growth stuff, the Magnificent Seven, some of these stocks, you know that really led.

The last rally.

But i'd all so step back and just say, when you look at where stocks were a year ago, when you look at where stocks were six months ago, you know, we had a big move up in the early part of the year, and we've kind of reset to kind of where we were, you know, six and twelve months ago. What's really important is people need to understand the policy set going forward and the prospects for growth going forward.

Does the dollar remain a reserve currency? Absolutely, in ten years, twenty years.

I absolutely think the dollar is going to be the reserve currency, but the value of the dollar relative to other alternatives can shift, and I do think over time the US needs to be very focused on our levels of debt or deficit spending, et cetera.

And I think to the degree that we don't handle that appropriately, it can put more pressure on the dollar.

But I don't see a scenario in the near term where I think it's likely that the dollar is not the reserve currency for the world.

I know you're basically saying, look, keep a cool head until we have a better understanding.

Right, some of the policies could in.

Place, But what does it do to the US economy going forward?

You know, does a FED need to cut rights? Because if I'm.

Certain general growth, I think it depends.

You know, Goldman Sachs has lowered its growth forecast from two percent too point five percent. It's not clear how this will all play out in the coming months. No one really knows. But to the degree that the economy slows, ultimately the FED will try to act to buffet, you know, some of that slow down in the economy, to the degree that we go into recession, you know, that will lead to a different reaction. So again, the FED will

Decisions based on that.

Everyone wants to project forward and know the answer for a moment in time where it's more uncertain than makes everybody comfortable, and I just you know, I just say, it's a moment in time. Let's you know, step back, Let's see how some of these trade deals are cut. Let's see what policy actually does go into place, and that will help us better understand the forward growth trajectory.

But it's clearly been slowed by these actions.

And as I'm talking to CEOs, as I'm talking to our clients, they are holding back on investment and they're certainly tightening their belt. You're going to see some companies laying off employees and running their businesses tighter because of this level of uncertainty.

Well, where's China and all of this.

Well, China is a hugely important trading partner to the West, to the to Europe.

At the moment, we're in.

The early stages of what I think is an obvious negotiation between the US and China, and we need more clarity. But the current state of affairs is not sustainable, and so that's why I think there will be some change. You're starting to hear the administration talking about the fact that there needs to be changed and what's in place is not sustainable, but no one knows exactly how this will play out at the moment, and that's that's increasing the level of uncertainty.

After the break, more from Francing the interview with Goldman Sachs CEO David Solomon. They discussed the prospects of financial deregulation on both sides of the Atlantic and what it means that some companies are tightening their belts. Goldman Sachs kicked off twenty twenty five with better than expected revenue.

I think one of the most interesting things about what's going on is it would be really good for global growth and good for the global economy if Europe can make more progress on capital markets, reform, European you know, champions really bringing together and harnessing the power of the European Union.

And one of the things.

I'm encouraged by as I'm over here visiting in Europe right now is I definitely take away a sense of resolve, of excitement about actually moving forward breaking down some of the regulatory barriers that have been inhibition to growth here. And I think that would be quite constructive and more stimulative. Fixtal action here in Europe also would be quite constructive for growth. So you know, there gives and gets, but it would be really terrific to see some progress on

Where do you see opportunities in Europe?

And again, is there like a six month window where if Europe doesn't get it backed together, it's.

Just too light?

No, I think you know, there's never just a six month window here or in the US. You know, it's a great sound bite, but these are the big important economies. I do think that European growth has been hampered by a very complex regulatory environment particularly in Brussels, and by a sense that many of the nations have acted, you know,

For global growth if we could see some progress on that.

I'm talking about regulation.

What are you expecting regulation for banks to look like in the US?

Just do rip up some of the regular Well.

I think we saw an enormous pendulum swing in the last four years toward a much tougher financial regulatory environment in the US. I don't think it was constructive, and I do think from a positive perspective, this administration would like to reset that I'm hearing some very constructive things along three fronts. One obviously is the leverage ratio, which is very very important for the treasury market. Two is on the capital regime and the construct of how bank capital is calculated.

And third is just on the supervisory process.

Supervisory process should be focused on ensuring that we have a safe and sound banking system and it shouldn't get distracted into other areas. And so I'm encouraged by what

Do you think Europe then follow suits in deregulating at the margins or otherwise it puts European banks.

In a very difficult position.

Well, I think one of the issues for Europe is that the banking system in Europe has not come along over the last fifteen years.

The same way as the US banking system.

As you know, there are obviously lots of institutions in the United States that are bigger, broader, much larger market cap banks, and so in the context of that, consolidation and growth in Europe and a capital markets union in Europe would be a very constructive thing for the capital markets more broadly. But Europe's been slow to make progress in that. I'm hopeful that we'll see more progress in the coming twelve to twenty four months.

There's a lot of talk about credits and of course private equity and some of the l turn for investments. How much does that grow in these uncertain times.

Well, when there's a higher level of uncertainty, the growth of private capital slows, just like the growth of asset management business and public capital slows too when there's uncertainty. But I think the long term secular growth trends around private capital formation are solidly intact. And if you step back and you step out of this moment in time, I think with a five or ten year view, we still have very good secular growth.

In private capital formation.

You know, with respect to private credit, we haven't had a credit cycle in quite some time. If we have a real economic slow down or ultimately.

A recession, you will have a credit cycle. We have to manage through that.

But with a five to ten year view, I still think growth in private capital formation is a long term trend that's firmly in place, and a firm like Golden Sachs and what we do in our asset wealth management business is very well positioned to benefit for that.

We often talk about a canary in the coal mine, or is there anything in either prior credit or anything that you're watching out for an indication of a significant souring I guess of the economy.

Or well, what's what has happened that we're all watching is the level of uncertainty has changed the prospects for growth in the short term, and as a result of that, companies slow down capital plans, people because they have less confidence spend less.

I think there was evidence in late.

January early February that when you looked at certain consumer discretionary businesses, we were starting to see a little bit of slow down.

Obviously, with the level of uncertainty we have now.

That's been accelerated, and so you know, there's no canary in the coal mine. The prospects for growth are slower, and as a result of that, investment will be slower. And until there's more confidence in the policy path forward, we're going to have to manage through a slower growth environment, and so m.

And A and IPOs will take a backseat.

Too strong a statement.

Again, capital markets activity was up year of year in the first quarter, m and A activity for deals above five hundre millions, So the kind of m ANDAU and I talk about was up in the first quarter year over year. Sponsor m and A was up in the first quarter year over year. I think it depends on where we go from here. You know, if you look at the month of April, there's still been a reasonable amount of MNA activity. IPO activity is slower given the

And given all of this, where do you see hiring and firing in what divisions and where geographically.

At Goldman's, Well, I think this firm always manages its headcount with a long term perspective, and we will continue to do that in an environment like this, where there's more uncertainty.

We probably control.

Our headcount by doing less hiring, not by at the moment based on what I see doing more firing. But I do think one of the things that the labor force broadly will have to deal with when there's uncertainty with companies.

And I'm hearing this from CEOs.

More broadly, CEOs tightener belts, and when CEO's titaner belts, they get focused on expenses.

And so I think we're going to go through a period here in twenty.

Twenty five where expense management is going to be more in focus for CEOs running big businesses than capital investment. And if we get more certainty as companies head into their planning processes.

In the summer, that might change.

But if we have the level of uncertainty we have now, that probably won't change in twenty twenty five.

This is the Big Take from Bloomberg News. I'm Sarah Holder. This episode was produced by Bloomberg TV. It was edited by our Deputy Executive producer Julia Weaver, Patty Hirsch, and Daniel Taube. It was fact checked by Rachel Lewis Kriskey and Audriana Tapia, and mixed and sound designed by Alex Sugiura. Our senior producer is Naomi Shaven. Our senior editor is Elizabeth Ponso. Our executive producer is Nicole beamsterbor Sage Bauman