Wealth advisors seeking clarity on the impact of recent fiscal policy developments may want to temper expectations. According to Goldman Sachs, the economic growth anticipated from the Republican tax reform and spending bill may be entirely offset by the negative effects of U.S. tariffs.
While markets initially welcomed the passage of a major tax and spending bill by the House of Representatives—touted by the GOP as a sweeping, pro-growth initiative—Goldman’s economists argue that these gains are likely to be counterbalanced by the drag of ongoing trade policy.
In a note issued Monday, Jan Hatzius, Goldman’s chief economist, and his team cautioned that the trade war’s economic consequences will likely overshadow any tailwinds from tax and spending cuts. “The hit to growth from tariffs will more than offset the boost to growth from the fiscal package,” Hatzius wrote.
For advisors who have been positioning client portfolios in anticipation of a growth rebound driven by fiscal stimulus, this presents a challenge. The expected acceleration in GDP growth following tax relief measures may be blunted—or even reversed—by protectionist policies that raise costs for businesses and consumers alike.
Post-Election Optimism Meets Trade Headwinds
Following President Trump’s 2016 election victory, markets rallied on expectations of sweeping pro-business policies. The prospect of significant tax reform and regulatory rollback sent equities soaring and fueled bullish sentiment across sectors. Wealth managers and institutional investors anticipated that such changes would result in higher corporate earnings and more favorable macroeconomic conditions.
However, this optimism has been tempered over the past year. As the administration escalated its use of tariffs, particularly in trade disputes with China and other key partners, investor sentiment has grown more cautious. Markets have had to weigh the pro-growth intent of domestic policy against the contractionary effects of protectionist trade measures.
The recently passed budget bill includes corporate and individual tax cuts as well as increased government spending aimed at stimulating economic activity. But these measures now coexist with ongoing tariffs that raise import costs and risk disrupting global supply chains—two forces pulling in opposite directions.
Trade Policy Undermining Fiscal Strategy
From an asset allocation perspective, Goldman’s assessment signals a complex and potentially volatile environment for advisors managing multi-asset portfolios. While fiscal stimulus typically supports risk assets like equities, the firm’s note suggests that such tailwinds could be neutralized by trade-related drags, which have historically acted as a headwind to both growth and investor confidence.
Even though recent trade negotiations have de-escalated tensions in the near term, Hatzius and his team remain cautious. They noted that any benefits from the fiscal package could be transient or limited in scale due to the continued risk of a tariff escalation.
Importantly, Goldman’s economists did not offer specific predictions for equity market performance. Instead, they focused on GDP growth and the broader macroeconomic impact. Their message to investors and financial professionals was clear: trade tensions remain a material threat to the economic outlook, even amid an ostensibly pro-growth fiscal agenda.
Potential Wildcards Remain
There are still scenarios in which the fiscal plan’s growth impact could improve. Goldman noted several potential revisions to the bill that could shift the outlook in a more constructive direction. For example, changes to state and local tax (SALT) deduction limits could provide additional support to high-income earners in high-tax states—a key demographic for many advisors.
Additionally, if federal spending cuts scheduled in the bill’s current draft are implemented more gradually or reduced altogether, the short-term stimulus effect could be stronger. But until such revisions are finalized, Goldman maintains a cautious stance.
In a separate May 12 update, Hatzius raised his 2025 U.S. growth forecast to 1%—up from a prior forecast—based on recent developments in the U.S.-China trade dialogue. Temporary tariff rollbacks offered some short-term relief, but the overall picture remains mixed, and the outlook highly sensitive to geopolitical developments.
Implications for Portfolio Strategy
For RIAs and wealth managers, Goldman’s analysis reinforces the need for balanced positioning and close monitoring of macro risks. Advisors should consider the possibility that headline economic policy achievements—such as tax reform—may not translate directly into investment gains if countervailing forces such as tariffs persist.
Diversification across asset classes and geographies remains essential. Equities that are more domestically focused and less exposed to global trade dynamics may offer relative insulation. Meanwhile, fixed income and alternative strategies could serve as buffers against downside risk if trade tensions flare anew.
In short, while the fiscal package passed by Congress offers the appearance of growth stimulus, its effectiveness may be undercut by the realities of ongoing trade friction. Wealth professionals should prepare for a policy environment defined by competing forces—and stay vigilant in recalibrating client strategies accordingly.
