Merrill Lynch Sees Trade War Escalation Likely, With Truce Possible Nearer to 2020

Escalation in the U.S.-China trade war will continue "until both sides feel enough economic, market and/or political pain to strike a deal," said Bank of America Merrill Lynch global economists Ethan Harris and Aditya Bhave in a research report Tuesday. "The recent escalation has opened an almost insurmountable gap in terms of numbers and trust," said the economists. "The only real question is whether the Trump Administration takes the politically dangerous step of imposing tariffs on headline consumer products in December," as it's scheduled to do mid-month, they said. "We think they give it a go: given the supply chain lags it will mainly impact consumer prices after the holidays. All told we expect US tariffs against China to increase from about $63bn in August to more than $115bn by yearend, with Chinese tariffs on US products rising from $20bn to $25bn." Closer to the 2020 election, "we expect a prolonged pause in the US-China trade war, with continued tough rhetoric and behind-the-scenes action by the US Commerce Department, but no major new tariffs," Smith and Bhave said. BofA ML estimates Amazon would need to hike prices an average of 2.1 percent on its first-party goods to "offset the impact" of the 15 percent List 4 tariffs, said analysts Justin Post and Michael McGovern in a separate report. Should List 4 tariffs rise to 25 percent, Amazon would need to raise prices 3.5 percent in its first-party marketplace, they said.