A recession could begin in as soon as nine months if President Donald Trump pushes to impose 25% tariffs on an additional $300 billion of Chinese exports and China retaliates, warns Morgan Stanley
Investors may still be underestimating the full risk to the global economy from a trade war, even after US stocks capped the worst month of the year. A recession could begin in as soon as nine months if President Donald Trump pushes to impose 25% tariffs on an additional $300 billion of Chinese exports and China retaliates with its own countermeasures, according to Chetan Ahya, chief economist and global head of economics at Morgan Stanley.
“My recent conversations with investors have reinforced the sense that markets are underestimating the impact of trade tensions,” Ahya wrote in a note. “Investors are generally of the view that the trade dispute could drag on for longer, but they appear to be overlooking its potential impact on the global macro outlook.”
That was followed by a warning from Goldman Sachs Group Inc., which now expects the US to impose 10% tariffs on the remaining $300 billion worth of imports from China and on all Mexican goods too. The bank lowered its US second half growth forecast by about half a percentage point to 2% and has sharply raised its subjective probabilities for rate cuts by the Federal Reserve.
“But while it is a close call, the outlook has not yet changed enough for cuts to become our baseline forecast,” Goldman analysts led by Chief Economist Jan Hatzius said in a note. The rift between the Trump administration and China has escalated as each side blames the other for the breakdown in talks. Over the weekend, Trump celebrated his trade policies and the recent move to impose tariffs on Mexican goods in response to illegal immigration. Trade tensions between the US and European Union are also simmering.
China issued a White Paper on Sunday that said the escalating trade war between the world’s two largest economies hasn’t “made America great again.” Instead, the paper argued that Trump’s trade policies have hurt the US economy by increasing production costs, causing prices hikes, damaging growth and people’s livelihoods and creating barriers to US exports to China..
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