3 ways a trade war with China could hit US profits, according to Goldman Sachs

• Goldman Sachs expects a 90% chance that Donald Trump implements pledged tariffs on China.
• This could hit output and profits among US producers.
• Industries will be exposed to increased costs and retaliatory measures from Beijing.

Economists are holding their breath to see how Donald Trump's protectionist trade plans will play out against China.

The incoming US president has pledged to impose a 60% tariff rate on Chinese products and has recently raised the odds by promising an additional 10% tariff.

Goldman Sachs is near-certain that Trump will be true to his word. According to the bank, there's a 90% chance that the next administration will confront Beijing with wide-sweeping tariffs.

If so, US producers would not go unscathed, bank analysts wrote. Here are three ways tariffs could weigh on US producers:

First, intermediate goods from China will face a big enough price hike to dent some American industries.

Though only a slice of final products made in the US depends on Chinese-made inputs, this varies by sector.

As a whole, intermediate goods from China account for 0.3% of gross output in the average US industry, meaning that most American producers are shielded from price swings. As input prices climb 20 percentage points on average, Goldman expects a small uptick in production costs.

However, that can have an outsized effect in industries with large exposure to Chinese intermediate goods, including autos, machine tools, furniture, and textiles, Goldman wrote. Given these industries' thin profit margins, the modest boost to production costs amounts to 10% to 30% of operating surplus.

Second, retaliatory tariffs could hurt US exporters.

According to Goldman, over 80% of wood, cereals, iron ore, and animal products have buyers in China. More than 50% of US soybeans and close to 20% of autos are also exported to the country.

That puts agriculture and forestry at the highest risk if Washington falls into Beijing's retaliatory crosshairs. Over 60% of export sales come from Chinese for both sectors, Goldman said.

The outcome isn't far-fetched. Just consider China's response to the wave of tariffs Trump introduced during his first term. Instead of a quick resolution, both nations imposed hundreds of billions of dollars worth of tariffs in a tit-for-tat trade war.

Already, Trump's pledge to impose an additional 10% tariff has triggered criticism from Beijing, reminiscent of the 2018 dispute.

Third, China could implement 'non-traditional' forms of retaliation.

Goldman cited China's hold over raw materials critical to US industry, which it could choose to restrict. The US imports over 70% of these materials from China, including natural graphite, rare-earth compounds, and antimony oxides.

There is no easy substitute for these exports, which could create issues in producing key electronics, autos, and defense technologies.

This month, China has already signaled its readiness to withhold critical materials, responding to a new semiconductor ban presented by the Biden administration. In retaliation, Beijing suppressed the trade of materials such as graphite.

What about consumer-side effects?

Amid the tariff uncertainty, many economists have warned that consumer inflation will resurge in the states. According to the Conference Board's latest Expectations index, consumers also worry about this.

But as with intermediate goods, Goldman expects a moderate impact from higher prices, though some products are more exposed to China than others. For instance, the US heavily depends on Beijing for durable household items, footwear and clothing, and consumer electronics.

But prices on these goods would climb by just 1% to 2% on average, though as much as 2% to 10% for items sourced specifically from China.

Goldman estimates personal consumption expenditure prices would climb by 0.24%. On an annual basis, this inflation gauge rose 2.4% this month.