Citi’s most pessimistic case occurs if the U.S. and China fail to reach an agreement or a rollover of the March 2 deadline. Tariffs on $200 billion worth of Chinese goods would increase to 25 percent from 10 percent, it said. Citi also expects Washington would attempt to exert further downward pressure on the Chinese economy. Depending on the state of economy, Beijing could elect to retaliate with its own tariff hikes for those products already targeted in its $60 billion penalty.

China could also take “unconventional” measures like placing barriers on American investments or introducing regulatory hurdles on American companies already operating within its borders. It might also choose to reduce its holdings of U.S. securities, though that risk could be contained by potential risks to financial stability, Citi’s strategists wrote.

“This scenario would have negative implications for global trade and global growth, potential for nonlinearities in U.S. inflation, and overall a negative confidence shock affecting investment decisions and market sentiment,” Rojas wrote.

Citi strategists think the expected drag to global growth would be a bullish sign for Treasurys, and term premiums would remain depressed. However, the lower-term premium could be at risk if China sells its Treasury holdings. Citi strategists think that global equities could be down about 10 to 15 percent in the short term.

Consumer technology giant Apple, in particular, could be vulnerable to worsening U.S.-China relations.

“When we assess our coverage the company with the most exposure is Apple, which has approximately 15 percent of its sales into China and we note Apple’s source code and IP is not open unlike the Android platform,” IT hardware analyst Jim Suva wrote. “We note other large cap stocks such as IBM and Cisco have for many years de-emphasized China due to competition from Huawei and corporations which favor local China solutions.”

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