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On Wednesday (Nov. 28) the leaders of the world's 20 largest economies will gather in Buenos Aires, Argentina, for the 2018 G-20 Summit.
The annual meeting is intended to foster dialogue between all leaders about global economic health.
However, all eyes will be on just two heads of state: U.S. President Donald Trump and Chinese President Xi Jinping.
You see, trade war tensions between the two nations have rattled the global economy over the last 11 months, disrupting global trade and sending all major indexes into the red for 2018.
Wednesday's G20 summit is widely viewed as a key opportunity to alleviate tensions and resolve an increasingly aggressive trade war.
According to a statement from President Trump earlier this month, the G-20 summit is the perfect opportunity to "make a deal with China."
However, a failure to reach a deal could also make thing worse – much worse. In fact, it could decimate stock market returns for the next year…
The Trade War Is Hurting American Companies – and Profits
Markets have largely stabilized over the last week, as bullish talk about the trade summit has alleviated investor's trade war fears.
In a press conference last week, White House economic advisor Larry Kudlow stated that trade negotiations are likely to "come to a head" at the G-20 summit and could yield positive results.
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But if a deal isn't reached, the trade war will escalate.
On Jan. 1, 2019, a 10% tariff currently imposed on $200 billion worth of Chinese exports is scheduled to jump to 25%. That's a 150% increase that takes effect instantly.
If past tariff hikes are any indication, January's 15% jump is likely to damage the bottom lines of major American firms that rely on raw materials from China for production.
This was the case earlier this year, when Harley-Davidson Inc. (NYSE: HOG) announced an estimated loss of between $45 million and $55 million due to the administration's tariff policies.
Meanwhile, America's largest car manufacturer, General Motors Co. (NYSE: GM), saw a $300 million increase in the cost of raw commodities from just one year ago.
According to GM's CFO Chuck Stevens, GM expects to face a $1 billion net headwind thanks to these price hikes and the long-term fallout from tariffs.
In fact, GM announced on Nov. 26 that it intends to significantly reduce North American operations due in part to rising material costs from tariffs.
Damage inflicted on the bottom lines of American companies is going to have a tremendously negative impact on stock returns in 2019.
And the reality is a deal at the G-20 summit just isn't going to happen…
G-20 Summit Talks May Be Dead on Arrival
The White House is using the Jan. 1 deadline as leverage, but the administration may be overplaying its hand.
Earlier this month, Chinese and American representatives met at the annual Asia-Pacific Economic Cooperation Summit (APEC) in Papua New Guinea to discuss their ongoing trade dispute.
Rather than reaching any formative compromises, the conference featured several hostile exchanges, including a fiery rebuke of Chinese economic practices by Vice President Mike Pence.
"We don't drown our partners in a sea of debt. We don't coerce, corrupt, or compromise your independence," the vice president told delegates.
In response, President Xi Jinping accused the United States of aggressive trade tactics and imperialist thinking.
"Confrontation whether in a Cold War, hot war, or trade war will produce no winner… empire and aggression have no place in the Indo-Pacific," said the Chinese president.
President Xi Jinping's language at a summit specifically held to address economic disputes suggests it's highly unlikely that he will be willing to comprise with President Trump just two weeks later at the G-20.
Failure to compromise this week could make an upcoming trade deadline absolutely fatal for stocks. It will make this year's trade war volatility seem smooth in comparison.
While we can't yet know the severity of the downturn, you can start preparing right now…