The “Worst Case Scenario”: A 10% Tariff On All US Imports & Exports Would Slash S&P EPS By 11%
by Tyler Durden
ZeroHedge.com
Mon, 06/18/2018
Over the weekend, Goldman made a material change in its analysis of the US-China trade war, which it no longer sees as simply a negotiating tactic for Trump to extract further concessions from Beijing, but as a policy which is set to go live on July 6, and now comprises Goldman’s “base case”, to wit:
With this announcement, the likelihood of tariffs on the first $34 billion in goods rises substantially, and implementation by the July 6 deadline looks like the base case. That said, there is still a clear possibility that tariffs could be postponed if US-China negotiations in the interim are productive. If the tariffs take effect on schedule, we expect China to retaliate with tariffs on a previously announced list of US products
Of course, the risk is that once this tit-for-tat regime begins, it may continue escalating indefinitely: recall that on Friday, in order to prevent China from retaliating to the first $50BN in tariffs, Reuters reported the US may impose higher tariffs on an additional $100bn of Chinese imports. This threat did nothing to slow down Beijing’s response, however, which retaliated almost immediately with $50BN of its own tariffs. Clearly, if implemented in about 60 days, this second round of trade war will likely be much more damaging for both sides.
Commenting on the potential escalation, Deutsche Bank economists said that the second US tariff list could include big item consumer goods such as phones, computers, TVs etc, which could mean a lot more workers in China and US consumers would be negatively affected. If this second scenario eventuates, the German bank expects China to loosen policy such as tolerating the property and land market boom in tier 3 cities and cutting the RRR twice over the rest of this year to partly offset the potential drags. Keep in mind that even without trade war, last week we learned that China’s economy just reportedly “shockingly weak” data, which prompted the PBOC not to hike alongside the Fed.
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