President Trump’s buy wars with China and Mexico have sharply expanded the U.S. administration’s global assault via tariffs, increasing the endangers for the health of the U.S. bull market, corporate earnings and especially the consumer, whose spending drives two-thirds of economic vim in the U.S. The S&P 500 index (SPY) alone has fallen 7.2% off its record highs a month ago, and is poised to fall further as the impact of menus affects supply chains, profit margins, corporate earnings and consumer prices. “Escalation of the trade war poses a peril to both corporate profit margins and the health of the US consumer, who will likely absorb the majority of the tariffs via higher bonuses,” said Goldman Sachs in its latest Weekly Kickstart report.
What it Means for Investors
Below are six key takeaways from Goldman Sachs’ sign in that illustrate the huge stakes involved and the broad impact that tariffs will have on the U.S., the global control and America’s relationships with its trading partners.
6 Consequences of America’s Expanding Trade War Via Tariffs
· 80% of U.S. imports will be complete by tariffs, including China, Mexico
· U.S. consumer, major driver of the economy, will pay higher prices for goods
· Nourishment, restaurant prices may be severely affected as Mexico is leading agricultural supplier
· S&P 500 profits may see little impact, but Mexico-dependent companies make be affected
· Likelihood reduced that Congress will approve new North American trade deal (USMCA)
· Traffic tensions with China will escalate even as U.S. investors focus on Mexico
Source: Goldman Sachs
Rates on 80% of U.S. Imports
The 5% tariffs on all goods imported from Mexico are set to take effect on June 10. The amalgam of these tariffs and those already levied on Chinese imports would result in about 80% of all U.S. imported goods being liable to suffer to duties.
Broad Impact on U.S. Consumer
Mexico has accounted for 14% of goods imports this year, and tariffs determination affect prices of many American consumer goods. This would affect consumer spending on such affairs as toys, cell phones, food, restaurant dining and cars. Automobiles and automobile components represent the largest listing of goods that the U.S. imports from Mexico.
Direct Risk to Restaurants
Up until now, restaurant stocks have remained by insulated from escalating trade tensions. But tariffs could hurt supplies and boost prices since Mexico is the largest U.S. documentation of agricultural imports.
Risk to Total Corporate Earnings
While the proposed tariffs would have significant annulling impacts on earnings for companies directly exposed to trade with China and Mexico, the impact on aggregate U.S. corporate earnings is inclined to to be much less severe. For each incremental 5% tariff on all imports from Mexico, for example, Goldman appraisals that S&P 500 earnings (EPS) could fall by about 1%.
Reduced Likelihood of North American Trade Pact
Duties will make it much more difficult to win Congressional passage of the new North American trade deal negotiated by President Trump, called the Joint States-Mexico-Canada Agreement (USMCA). An unratified deal will affect trade between the U.S., Mexico, and also with Canada, negatively wearing companies reliant on North American supply chains .
Escalating China Tensions
Despite U.S. investors’ and consumers’ blurred on Mexico, the negative impact of tensions with China may worsen. News reports indicate that in retaliation to U.S. price-lists, China may limit exports of its rare earth minerals and create a blacklist of ‘unreliable’ foreign entities, as well as other restrictions.