And What did you do in the Trade War?

With his proposed tariffs on $50-$60 billion of Chinese goods, it seems that President Donald Trump wants to start a trade war. As if on cue the S&P 500 dropped 2.5% today and export oriented Boeing and Caterpillar declined by more than 5%. To be sure the U.S. has serious issues with China with respect to trade in general and intellectual property specifically, shooting first and asking questions later is hardly the best way to settle a trade dispute.

As a result investors are rightly worrying about the broad imposition of tariffs on China on inflation and growth. Simply put a tariff is a tax that will increase inflation and slow growth as the Chinese retaliate against American made goods. It is a recipe for stagflation that will hardly be good for stocks.

Of course Trump's announcement could be an opening gambit in a very complex negotiation. That was the case with his steel and aluminum tariffs a month ago. He has since exempted our major trading partners in those commodities namely Canada, Mexico, Brazil and South Korea. Thus it is no surprise that the steel and aluminum stocks have given back all of the gains they made on the initial tariff news. But make no mistake Trump is playing with fire, and a good chunk of the global trading structure could burn down.