How will China respond next to the trade war?

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Via Goldman:

The tariff impact on S&P 500 EPS through lower revenues is minimal. S&P 500 firms derive just 2% of aggregate sales explicitly from China. Even a global trade war where every country imposes a 5% tariff on all trading partners would have a muted revenue impact. Our economists estimate the demand-side effects of such a scenario would reduce US GDP by roughly 20 bp and world GDP by 10 bp. This scenario would translate to a 1% reduction in 2019 S&P 500 EPS (from $170 to $169), given our EPS model’s sensitivity to GDP growth.

Tariffs pose a larger threat to S&P 500 EPS through lower margins. 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.

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About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.