Trump To Proceed With $200BN More In China Tariffs Despite Talks; Stocks Tumble

It is not clear why traders, algos and so-called experts were quick to assume that a deal was finally imminent: after all, repeatedly efforts to end the dispute had fizzled so far, for one simple reason: Trump is convinced that he is winning the trade war. Officials from both countries have met four times for formal talks, most recently in August, when Treasury’s undersecretary for international affairs, David Malpass, led discussions in Washington with Chinese Vice Minister Wang Shouwen. There were no breakthroughs because Trump refused to relent on any outstanding issue.

In a kneejerk reaction to the news, US stocks, and the Chinese yuan tumbled having priced in a far more favorable outcome in recent days.

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Some more context here:

Earlier this week, Goldman became the latest to weigh in on the topic of trade war, highlighting the potential danger to Corporate America if a full-blown trade war erupts, one which now appears inevitable. And in a radical departure from his traditional optimism, Goldman chief strategist David Kostin went so far as now calling for a bear market, with the S&P dropping 25%, resulting in over $6 trillion in market cap losses, should the U.S. impose 10% tariffs on all imports.

In a sensitivity analysis evaluating a baseline case, as well as a moderate and severe trade war, Kostin predicts that a 25% tariff imposed just on Chinese goods would wipe out growth for S&P 500 companies next year, keeping S&P500 EPS flat at $159. In the extreme case - the one which Barclays evaluated back in June - and in which the U.S. imposed 10% tariffs on all global imports, earnings would drop 10% as costs went up for Americans while crushing corporate profits.

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In addition to hammering earnings, Goldman also expects that the PE multiple of the S&P would also contract, dropping from the current 17x to 15x, and resulting in an S&P plunge of 25% from the current 2,888 to 2,200, which would lead to a bear market and wipe out over $6 trillion in market capitalization.

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