President Donald Trump waves during joint statements with China's President Xi Jinping at the Great Hall of the People in Beijing, China, November 9, 2017.
Thomas Peter | Reuters
Goldman Sachs said Sunday that the risk of a final round of tariffs on roughly $300 billion of imports from China has now risen to 30%.
The bank said in a note that the trade war's impact on U.S. consumer prices is now higher than previously expected, partly because costs of U.S. tariffs have fallen entirely on U.S. businesses and households, with no clear reduction in prices charged by Chinese exporters.
Further escalation of the trade war could also result in a 0.4% hit to GDP, and if trade tensions instigated a sell-off in the equity market, the growth impact could worsen, Goldman said.
"Our baseline expectation is that the U.S. and China will strike a deal later this year. We think this would come in the form of a gradual, staggered reduction in tariffs on a last-in, first-out schedule," the bank said.
"There is, however, a risk of further escalation," Goldman said.
Investors have been grappling with whether the trading relationship between the U.S. and China will actually worsen.
The most recent round of trade talks, which ended on Friday with no final agreement, was overshadowed by President Donald Trump's decision to more than double tariffs on $200 billion of Chinese goods, from 10% to 25%.
Some traders are hoping that there's still time to strike a deal, citing the notion that new tariffs are not applied to Chinese exports that were already in transit before the deadline, which provides more time before tariffs are applied to goods entering the U.S.
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