Goldman Sachs: China trade dispute won't hurt earnings, so buy the market

Key Points
  • Goldman's David Kostin says rising trade tensions between China and the U.S. are a "minimal risk" to the S&P 500's profits.
  • Kostin reiterates his year-end price target of 2,850 for the S&P 500, representing 9.4 percent upside from Friday's close.
Chinese President Xi Jinping and U.S. President Donald Trump attend a welcoming ceremony November 9, 2017 in Beijing, China.
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Investors shouldn't worry over the latest round of trade policy retaliation between the U.S. and China, according to Goldman Sachs.

"Trade tensions represent a minimal risk to S&P 500 earnings in aggregate," David Kostin, Goldman's chief U.S. equity strategist, wrote in a note to clients Friday. "Trump Administration has floated the possibility of an additional $100 bn of tariffs [on China]. Our Washington, D.C. economists view this escalation as a negotiating tactic, but it increases the probability of disruptive announcements in coming weeks."

The strategist said imports from China only represent 3 percent of U.S. GDP, while exports to China constitute just 1 percent of the economy. Goldman's chief economist Jan Hatzius said on Monday if the proposed tariffs are implemented, it would impact U.S. inflation and GDP growth by less than 0.1 percentage point.

Kostin reiterated his year-end price target of 2,850 for the S&P 500, representing 9.4 percent upside from Friday's close.

Trade tensions with China rose to new highs last week when the Trump administration on Tuesday detailed its targets of Chinese imports to be subjected to tariffs.

On Wednesday, China responded by announcing plans for tariffs on 106 U.S. products, including soybeans, cars, aerospace and defense. Then on Thursday, President Donald Trump instructed the U.S. trade representative to consider $100 billion in additional tariffs against China, which Goldman cited.

Treasury Secretary Steven Mnuchin said on Friday "there is the potential of a trade war."

The recent trade volleys between China and the U.S. came after Trump's tariff plan for aluminum and steel imports earlier this year.

The administration granted several countries exemptions from the aluminum and steel tariffs last month after initially implying there would be no exemptions for any countries.

— CNBC's Michael Bloom contributed to this story.