Investors and economists for months have clung to the hope that rational self-interest would ultimately bring a negotiated end to the United States-China trade war, perhaps even ahead of the U.S. midterm congressional elections next month.
But such optimism is increasingly seen as misplaced as more experts are now bracing for a protracted conflict — with little optimism for resolution.
"When it comes to trade we're starting to get to the point where people are pricing in the worst," Patrik Schowitz, global strategist at J.P. Morgan Asset Management, said Monday on CNBC's "Squawk Box."
"There is quite a lot of talk now that this is going to be a permanent new situation, that we are heading for a new cold war," Schowitz added. "So I think people are starting to price in the worst possible outcome."
Yves Bonzon, chief investment officer at Julius Baer said the private bank had believed that the threat to profits at U.S. companies listed on the S&P 500 from intensifying trade tensions would be enough to bring about a truce.
"So this is why, from the beginning, we expected the U.S. administration to back off at some point, claim some concession from China," Zurich-based Bonzon told reporters in Hong Kong last week.
But, he admitted, that scenario is not playing out.
Haibin Zhu, chief China economist at J.P. Morgan, said the bank's baseline scenario is for the U.S. to impose tariffs on all Chinese imports.
That means "real painful economic events in 2019," he said at a conference last week in Hong Kong.
With the transformation into a "full-scale trade war, (the) impact will be much bigger," Zhu said, adding that it could shave about one percentage point off of China's economic growth.
Julius Baer's Bonzon said that a resolution ahead of the Nov. 6 U.S. elections is unrealistic and the outlook beyond is unclear.
He said that the bank is now taking the "pragmatic view" that Trump will ultimately win re-election and his trade stance will remain in place well into the next decade.
"Most likely, we're going to have a continuation of the current policies," he said.
Reference: CNBC
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