Goldman Sachs Lowers US Recession Odds Amid US-China Trade Deal

Goldman Sachs has reduced the probability of a U.S. recession within the next 12 months from 35% to 30%, attributing the adjustment to decreased uncertainty surrounding President Donald Trump's tariff policies. This revision follows a recent trade agreement between the United States and China, which includes the removal of Chinese export restrictions on rare earth minerals and the restoration of access for Chinese students to U.S. universities.

The trade agreement, announced after negotiations in Geneva and London, aims to de-escalate ongoing trade tensions between the two economic powers. Key provisions include China's commitment to supply rare earth materials upfront and the U.S. allowing Chinese students to attend its universities. President Trump stated that the deal involves a fixed 55% tariff on Chinese imports—a combination of existing and newly imposed tariffs related to trade imbalances and issues such as fentanyl. However, details regarding implementation and enforcement of the agreement remain unclear.

China has confirmed its commitment to the trade deal, emphasizing its reliability and calling for both sides to adhere to the consensus reached. The agreement marks a potential stabilizing moment in the tense U.S.-China trade relationship.

Goldman Sachs noted that financial conditions have returned to pre-tariff levels and that indicators of trade policy uncertainty have lessened. The firm also raised its 2025 U.S. GDP growth forecast to 1.25% from a previous estimate of 1%.

The easing of trade tensions is expected to stabilize global markets and reduce the risk of a U.S. recession. However, some details remain unclear. While President Trump announced a fixed 55% tariff on Chinese imports, combining existing and punitive tariffs, China has not confirmed these specific figures. Chinese officials have emphasized their commitment to the trade deal but have refrained from disclosing concrete numbers or commitments.

China's dominance in the production and processing of rare earth minerals has been a strategic advantage in trade negotiations. The agreement to remove export restrictions on these materials is crucial for U.S. industries reliant on them. However, the U.S. remains dependent on imports and lacks sufficient domestic processing facilities, highlighting the need for investment in domestic supply chains.

Restoring access for Chinese students to U.S. universities is likely to strengthen educational and cultural ties between the two nations, fostering better mutual understanding and collaboration.

This trade agreement is part of a broader pattern of fluctuating U.S.-China trade relations. Previous agreements have been reached and subsequently strained due to various geopolitical and economic factors. The current agreement marks a potential stabilizing moment, but fundamental differences between the two countries remain unresolved. The broader trade agreement deadline set for August 10 remains uncertain, and the effectiveness of the current deal will depend on its implementation and enforcement.

While the recent trade agreement marks a step toward de-escalating U.S.-China trade tensions, the effectiveness of the deal will depend on its implementation and enforcement. Investors and policymakers will continue to monitor developments closely to assess the long-term impact on the global economy.