With the situation surrounding Trump's newly imposed tariffs extremely fluid to say the least, with up to the minute updates coming fast and furious - including the news that the trade war with Mexico may be over a few hours after it started - trying to frame the long-term impact on the economy and/or the market may seem like a naive fool's errand, yet that's the exercise Goldman's David Kostin undertook overnight when in a report analyzing the impact of Trump's first trade war salvo (available to pro subscribers), he calculated not only the potential adverse impact to S&P earnings and levels, but also which stocks stand to lose the most from an escalating trade war.

Kostin starts off by pointing out the obvious, namely that "large tariffs pose downside risk to our S&P 500 earnings estimates and return expectations"; he goes on to note that if company managements decide to absorb the higher input costs, then profit margins would be squeezed. Alternatively, if companies pass along the higher costs to its end customers, then sales volumes may suffer.

A third option is that firms may try to push back on their suppliers and ask them to absorb part of the cost of the tariff through lower prices. Goldman estimates that every 5% increase in the US tariff rate would reduce S&P 500 EPS by roughly 1-2%. As a result, if sustained, the tariffs announced this weekend would reduce Goldman's S&P 500 EPS forecasts by roughly 2-3%, not taking into account any additional impact from major financial conditions tightening or a larger-than-expected effect of policy uncertainty on corporate or consumer behavior. Meanwhile, as noted previously, Goldman's economists describe the outlook as unclear but believe "there is a substantial probability that the tariffs on Canada and Mexico will be temporary."