In the latest installment of the story that just won’t go away, the WSJ reported on Saturday that – as Bloomberg reported first yesterday – the Trump administration plans to announce new tariffs on up to $200 billion in Chinese goods as soon as Monday and otherwise “within days”, in a move that will likely render moot the high-level, U.S.-China talks set for later this month, will prompt an immediate retaliation from China, and may lead to a sharply lower futures open on Sunday night.

The silver lining in the imminent announcement is that while previously Trump had said he would proceed with a 25% tariff level, the WSJ reports that the US will start with tariffs of “around 10%.” The level was lowered “following extensive public hearings and the submission of written comments where importers and others complained of the possible impact of the duties” as well as to try to reduce the bite on American consumers ahead of the year-end holiday shopping season, these people said.

But the people familiar said that the tariff level could be raised back to 25% if Mr. Trump concludes that Beijing doesn’t soon show signs that it is acceding to U.S. demands to change its economic policies.

Furthermore, WSJ sources said that while details were still being completed over the weekend, the tariff level could change, or that Trump could change his mind entirely. As of Saturday, an announcement was planned for Monday or Tuesday.

Recall last week Deutsche Bank calculated that so far the US had carefully avoided consumer and China dependent products, and as a result, the trade war so far has had little impact on US economy and consumers. But this would become harder as the tariff list expands to the next 200 billion, which contains about 78 billion in consumer products (chart below, left). These include different types furniture (24bn), travel bags(2.2bn), vacuum cleaners (1.8bn), vinyl flooring(1.7bn), window/wall air conditioners (1.3bn), etc. Similarly, reliance on China increases sharply for the 200bn products in tariff pipeline. China import shares are above 20% for most of the products, and for about half of them, China’s share are more than 50% (chart below, right).

After the imminent announcement, Trump’s decision is set to go into effect within weeks, and is “designed to give the U.S. more leverage in discussions with China over allegations that Beijing coerces American firms into handing over valuable technology to Chinese partners.” What it will do instead is to further deepen the diplomatic – and trade – rift between the two superpowers, and could prompt Beijing to retaliate “qualitatively” by selectively targeting US companies which have a major presence in China, such as US auto makers or Apple.

Incidentally, it was about a month ago that China’s state-run People’s Daily newspaper explicitly targeted Apple warning that the world’s most valuable company risks “anger and nationalist sentiment” if it doesn’t share the wealth. China is a major market for Apple, where sales grew by 19% in the latest quarter to $9.6 billion, something the Chinese op-ed highlighted, saying that “amid escalating trade friction, the company’s better-than-expected quarterly result in China was a major reason for the surge in its shares.”

The timing of the latest set of tariffs will be problematic for Trump: the tariffs would take effect just weeks before the November midterm elections, where Trump’s Republican party is expected to lose control of the House. Meanwhile, business groups opposed to the tariffs have been spending heavily to make the tariffs an issue in the campaign.

White House spokeswoman Lindsay Walters declined to comment on the status of the tariff discussions inside the administration, referring to a statement she put out Friday that said: “The president has been clear that he and his administration will continue to take action to address China’s unfair trade practices. We encourage China to address the longstanding concerns raised by the Unites States.”

It goes without saying that the new tariffs are all but certain to be met immediately by Chinese retaliation against U.S. exporters, especially against farmers, further raising the political heat on the GOP ahead of the vote.

As Bloomberg previously reported, Trump made his decision late last week to move forward quickly with the tariff announcement, just a few days after he had authorized aides to try and set a new round of talks with China. The two moves reflect familiar divisions in his administration over handling escalating trans-Pacific trade tensions, with some – such as trade hawk Peter Navarro – urging an ongoing tough line and others – led by Steven Mnuchin – hoping to keep open a dialogue that could foster compromises before the spat turns into a full-fledged trade war.

More importantly, the tariff announcement will likely derail talks with top Chinese officials, which are currently scheduled in Washington for Sept. 27 and Sept. 28.

Beijing is expected to send Chinese Vice Premier Liu He to Washington to meet with Treasury Secretary Steven Mnuchin, who last week had sent an invitation to the Chinese for another round of senior level talks, said the people familiar with the discussions. If those talks go well, Mr. Liu may also meet with Mr. Trump.

But some of the people said Mr. Liu expected that the threat of tariffs would be delayed until at least the conclusion of the talks. The decision to move ahead with tariffs puts those talks at risk, they said.

The looming $200 billion tariffs will come on top of $50 billion on duties imposed on Chinese imports over the summer, to which China immediately retaliated with its own tariffs on U.S. goods and has said it would do the same in response to the coming round. Trump also recently said that he’s ready to add tariffs on another $257 billion in Chinese goods—subjecting virtually all U.S.-bound Chinese exports to duties. A full timeline of the US-China trade conflict as of last week is shown below.

Trump’s decision should not come as a surprise to the market – although it probably will as the S&P has sternly refused to sell off on the repeated news, assuming that a worst case scenario would be avoided. Ironically, it is the S&P’s resilience that has emboldened Trump to proceed with further escalation, as the divergence between the S&P and the rest of the world…

… is the key catalyst the US president has pointed to as justification that he is “winning” the trade war.

Once Trump enacts the new tariffs, it will only be a matter of time before the downstream effects hit the US economy, focusing on the US consumer who is about to find the costs of many Chinese imports suddenly spiking. However, as long as the S&P continues to rise, Trump will merely further escalate the tit-for-tat trade war until one day the algos finally reverse and the S&P tumbles, catching down to the rest of the world.

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