The Overrated Trade War

Goldman Sachs said that a full-blown trade war could shave 15% off the earnings for the S&P 500.

That may be correct, but I have a few things to add. I would say that the odds of a full blown trade war are very low. The negative impact of anything that has a decent chance of happening are quite low.

From Goldman:

“We consider adverse scenarios in which tariffs are placed on all imports from China or globally. For all US industry, roughly 15% of cost of goods sold (COGS) is imported. We assume that S&P 500 companies, which are more global in nature and have more complex supply chains, import roughly 30% of COGS. This is consistent with the 29% of S&P 500 sales is generated outside the US. Imports from China comprise 18% of total US imports. Conservatively assuming no substitution to other suppliers or pass-through of costs, and no boost to domestic revenues or change in economic activity, a 10% tariff on all imports from China would lower our 2019 S&P 500 EPS estimate by 3% to $165. If tensions spread and a 10% tariff were implemented on all US imports (highest rate since 1940s) our EPS estimate would fall by 15% to $145.”

Don’t get me wrong — a trade war is bad, but a minor skirmish won’t destroy us.

Posted by on July 23rd, 2018 at 12:51 pm


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