While trading desks are scrambling to goalseek the Fed's clearly hawkish statement into a dovish speech by Powell, in order to keep the Koolaid flowing at least a bit longer and stem today's bloodletting, one potential catalyst that could send the dollar even higher is a confirmation from the WSJ of what Politico and we reported earlier today, namely that the Trump administration, deepening its global trade offensive, is set to levy tariffs on tens of billions of dollars of Chinese goods in the coming week, perhaps as early as Friday—a move that is likely to spark heavy retaliation from Beijing.

What the WSJ adds to what we already knew, is that Trump's mind was already made up last week:

Senior trade officials in the White House, Commerce and Treasury departments, and the U.S. Trade Representative’s office met on the issue before President Donald Trump went to a summit of the Group of Seven industrialized nations in Canada on Friday, and agreed that the U.S. should move ahead with tariffs, said U.S. officials and others briefed on the talks.

While the odds are minimal, there is a chance that Trump will nix an escalation in the trade war: as the WSJ notes, "Trump still hasn’t given his final approval and could have second-thoughts about applying heavy pressure on China", perhaps because "the U.S. wants Beijing’s cooperation in its efforts to get North Korea to give up its nuclear weapons."

We doubt it. As we said earlier, "China was seen as playing a key role in getting North Korean leader Kim Jong Un to the table with Trump, who has consistently linked his trade demands to Beijing’s willingness to help on North Korea; now that the summit is over and the wheels are turning, Trump no longer needs China's aid."

And in his populist approach of focusing on his campaign promises and in hopes of distracting from the Mueller probe, Trump will do what he is confident will lead to more popular support: escalate the war with China at a time when the US economy is supposedly humming along.

So how big will be the next trade war round?

While the exact amount of goods subject to tariffs is still being finalized, the administration’s list was initially $50 billion in goods, and it is being refined as some products are taken off the list and others are added, following a public comment period.

But what is perhaps most notable is that as the WSJ highlights, "the agreement by the heads of the agencies represents an unusual moment of consensus on trade" in an administration often at odds with itself over how to proceed.

Trade hawks in the administration want to crack down hard on China, while globalists are seeking compromise.

If the WSJ report is accurate, this time even the globalists want to take on Beijing.

In other words, Gary Cohn resigned for nothing...