Goldman Sachs Warns US Profit Margins at Risk from Tariffs; Cuts Recession Odds to 30% Amid Uncertainty

Key Points

• Research suggests US profit margins face significant risks from tariffs, as per Goldman Sachs strategists.

• It seems likely that companies, especially those exposed to tariffs, will see squeezed margins in Q2 earnings.

• The evidence leans toward increased costs from tariffs, with some companies mitigating impacts while others, like General Mills, face share drops.

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Background

US profit margins are under pressure due to tariffs, with Goldman Sachs strategists highlighting the risks as companies prepare for the second-quarter earnings season. Tariffs have risen by about 10 percentage points since the year's start, affecting corporate costs and investor expectations.

Tariff Impact

Tariffs imposed by President Trump are increasing costs for companies, particularly those heavily exposed. Analysts have downgraded margin estimates, and examples like General Mills, whose shares fell 5% due to tariff-related cost increases, illustrate the impact. However, some firms, like Nike, have mitigated effects, with shares surging 15%.

Market and Economic Context

Despite a strong US economy, with solid consumer spending and no immediate recession risk, concerns about fiscal deficits and national debt add complexity. Goldman Sachs has moderated its risk-taking, reflecting uncertainty, and companies are planning for potential tariff hikes to 10-15%, affecting business decisions.

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Survey Note: Comprehensive Analysis of US Profit Margins and Tariff Risks

This note provides a detailed examination of the risks to US profit margins from tariffs, as highlighted by Goldman Sachs strategists, as of June 30, 2025. The analysis is grounded in recent financial news, earnings reports, and market analyses, offering a holistic view of the impact on corporate profits, market reactions, and economic implications.

Overview of Tariff Impact on Profit Margins

Goldman Sachs Group Inc. strategists, led by David Kostin, have issued a note on June 27, 2025, stating that US profit margins face a key risk from tariffs, particularly as the second-quarter earnings season approaches . Tariffs have increased by about 10 percentage points since the start of the year, putting significant pressure on corporate margins, especially for companies heavily exposed to these trade measures.

The upcoming earnings season, expected to report results around July 14, 2025, will be crucial for assessing the damage from President Donald Trump's trade policies. Analysts have been more frequently downgrading profit margin estimates for tariff-exposed companies compared to others, indicating a broader market concern about sustainability .

Company-Specific Impacts

The impact varies across companies, with some managing to mitigate the tariff effects while others face significant challenges:

• General Mills Inc. (GIS): Shares fell 5% last week due to a tariff hit on the cost of goods sold, as noted in recent market analyses .

• Nike Inc. (NKE): In contrast, Nike has managed to mitigate the tariff impact, with shares surging 15%, demonstrating effective cost management strategies . On the same date, NKE's performance was strong, though specific pricing wasn't detailed in the reports.

This disparity highlights the varied ability of companies to absorb tariff costs, with some passing costs to consumers and others absorbing them, thereby squeezing margins.

Expected Earnings and Market Performance

Goldman Sachs expects Q2 earnings growth for the April-June period to be 2.6%, the smallest increase in two years, reflecting the tariff-related pressures . Analysts anticipate the S&P 500 will "beat the low bar" for Q2, but the focus remains on tariff-exposed companies facing more downgrades.

Goldman Sachs' Internal Response and Economic Context

Goldman Sachs itself has moderated its risk-taking since Trump's April tariff announcement, bracing for more uncertainty, as reported on June 5, 2025 . John Waldron, Goldman President, described the tariff move as "very, very disruptive" in a podcast, emphasizing its broad impact. Companies are making business decisions assuming tariffs will rise to 10% to 15%, affecting capital spend, M&A transactions, capital return, and stock buybacks.

The US economy remains strong, with a solid labor market and consumer spending, and Goldman Sachs trimmed its US recession probability to 30% from 35% for the next twelve months on June 12, 2025, citing easing uncertainty . However, concerns persist about the unsustainable US fiscal deficit and the $36 trillion national debt, with Moody's downgrading the US credit rating last month, adding to market concerns.

Comparative Analysis and Implications

To organize the key developments, the following table summarizes the current state of US profit margins and tariff impacts:

Aspect	Details
Tariff Increase	About 10 percentage points since start of year, potentially to 10-15%
Q2 Earnings Growth Expectation	2.6%, smallest increase in two years, reporting around July 14, 2025
Company Examples	General Mills (GIS) shares fell 5%, Nike (NKE) surged 15%, varied impacts
S&P 500 Performance	Returned to record highs, sank 19% from peak to trough by April
Goldman Sachs Response	Moderated risk-taking, described tariffs as "very, very disruptive"
Economic Context	Strong economy, no immediate recession, concerns about fiscal deficit

The interplay between these developments highlights the dynamic nature of the market, with tariff-related risks pressuring profit margins while the broader economy shows resilience. The ability of companies to pass on costs or absorb them will be critical, with the earnings season providing clarity on the extent of the impact.

Conclusion

As of June 30, 2025, US profit margins are facing significant risks from tariffs, as emphasized by Goldman Sachs strategists. The second-quarter earnings season will be pivotal, with companies like General Mills facing share drops due to increased costs, while others like Nike mitigate impacts. Goldman Sachs' cautious approach and the strong yet complex economic backdrop underscore the challenges ahead. This analysis, drawing from financial reports and market news, provides a comprehensive view for stakeholders monitoring these critical dynamics.

Key Citations

• Bloomberg: Goldman's Kostin Says Profit Margins Face Key Risk From Tariffs

• Yahoo Finance: US Profit Margins Face Key Risk From Tariffs, Goldman Strategists Say

• Reuters: Goldman Sachs Pares Risk After Tariff Move, Braces for More Uncertainty

• Yahoo Finance: General Mills Inc. Stock Price

• Yahoo Finance: S&P 500 Index

• Reuters: Goldman Sachs trims 12-month US recession probability to 30%

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