One month ago, when previewing the potential fallout from an “all out” global trade war, which for simplicity’s sake many have equated with an across-the-board 10% tariff on all US imports and exports, we presented an analysis from Barclays, according to which the hit to 2018 EPS for S&P 500 companies would be ~11% and, thus, “completely offset the positive fiscal stimulus from tax reform.”

Furthermore, the impact on exporters which would be directly affected, would be 5%, while that on US companies that import finished goods or inputs would be higher, at roughly 6%. This, to Barclays, highlights the unintended consequences of imposing tariffs given the global nature of current supply chains.

Since then, trade tensions have only escalated at an alarming pace. In context, the US has already imposed tariffs on $79 billion of US imports and proposed tariffs on an additional $702 billion, with the combined $781 billion in targeted goods representing 27% of total US imports.

Reflecting this escalation in trade tensions, the Trade Policy Uncertainty Index recently notched its highest reading since 1994 around the time of NAFTA’s inception.

Adding fuel to the fire, in recent days all out currency war has also broken out following a sharp devaluation in the Yuan, which has tumbled at an annualized pace of 30%, far faster than during the 2015 devaluation…

… and eventually prompted Trump to also enter the fray, when he first complained about the Yuan “dropping like a rock” on a CNBC interview (coupled with some not so veiled suggestions against the Fed rate hiking ambitions), followed by vows to impose more tariffs and complaints about “illegal currency manipulation”, which have resulted in a rollercoaster move in the Yuan and, inversely, the dollar, and prompted Goldman to write that “trade war is evolving into currency war.”

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