President Trump started his retaliation for Chinese trading abuses and theft of U.S. intellectual property in January 2018. Trump imposed U.S. tariffs on solar panels and certain appliances. It was a small start but a clear signal that more was to come unless China agreed to end its abuses.

I warned at the time that the trade war could continue for years and escalate substantially before any accommodation was reached. Even worse outcomes were possible, including the commencement of a new Cold War between China and the U.S. Wall Street ignored these and similar warnings.

The view on the Street was that China and the U.S. were just posturing and the two sides would quickly reconcile and both would claim victory with no harm done. As usual, Wall Street had the forecast completely wrong. The trade war has escalated, the damage is far greater than Wall Street expected and there is no end in sight.

This article illustrates the fact that Wall Street is finally waking up. The chief investment strategist for Blackstone, one of the world’s largest private equity and asset management firms, warns that trade optimism on Wall Street is “excessive” and markets may be heading for a fall once reality sinks in.

The next round of direct China-U.S. trade talks is in mid-October. We should know in a few weeks if there is real progress, a limited “deal” or further escalation. My estimate is that some limited deal may be achieved to be confirmed by President Xi and President Trump at a summit in Thailand starting Oct. 30.

Wall Street might breathe a sigh of relief, but the relief would be purely temporary (and designed to help Trump’s reelection chances). The real trade war, including national security issues surrounding Huawei, has far to run and is just getting started.

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