I have been reading and pushing numbers on the effect of a US - China trade war. Goldman, for one, says that the tariffs just instituted will raise US CPI by only 3 basis points. That's 3/100 of one percentage point. If the next round (which includes virtually all Chinese imports) occurs, it will be 8 basis points.

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If that seems low, it is. The reason is that the cost of manufacturing a product is only a fraction of the final cost in a store. Also, over 60% of the US economy is services, which are not affected at all.

So what's the big deal? To the average American, virtually nothing. To the stock market, somewhat more. There are a fair number of companies in the S&P whose basic business model involves arbitraging the difference between Chinese wages and US prices. If that is cut off, there will be a lot of stranded assets in China. Longer term, these factories could be built or moved to places like India or Bangladesh. But it will cost money and time. That means lower earnings. Goldman thinks about 6% lower. Bad, but not disastrous.

For commodities, the short term question is how China responds internally. If they stimulate the economy by building new subways to nowhere, it's bullish. If they redouble their efforts to rationalize the economy towards consumer goods and services, that's bearish. Time will tell, but I bet they do both.

I took a long position in CF Holdings. This is the US's leading producer of nitrogen fertilizers. The US is an importer of fertilizer. The high cost world producer is Chinese for anthracite coal. So this is a way of playing both the comeback in US agriculture and the market's underestimation of the persistence of coal. I'm short Nov in-the-money puts.