Trade

Banks Say Trump Could Cause a Global Recession

Photo TIME Magazine
JM Ashby
Written by JM Ashby

Executives at Morgan Stanley recently told the bank's clients that we would "likely" see a recession here in the United States if Trump imposes tariffs on all remaining imports of Chinese goods, but the bank now says the consequences will be more global.

The bank's analysts are now warning investors and clients that Trump's trade war will cause a global recession and prompt the Federal Reserve to take drastic measures.

LONDON (Reuters) - A collapse of U.S.-China trade talks and hike in tariffs on Chinese goods would push the world economy towards recession and see the Federal Reserve cut U.S. interest rates back to zero within a year, analysts at Morgan Stanley said on Monday. [...]

If talks stall, no deal is agreed upon and the U.S. imposes 25% tariffs on the remaining ~US$300 billion of imports from China, we see the global economy heading towards recession,” the bank’s analysts said in a note.

In response, the Fed would cut rates all the way back to zero by spring 2020 while China would scale up its fiscal stimulus to 3.5% of GDP (equivalent to around $500 billion) and its broad credit growth target to 14-15% a year they added.

To say that we'll see a global recession "if talks stall" is not a very big if.

Talks have already stalled and, in the past day, Chinese officials openly implied that Trump is delusional.

I believe the best case scenario that we can hope for is for Trump to declare victory after his next meeting wit Chinese President Xi Jinping -- just as he did last November -- even if nothing has really changed.

The Trump regime has eliminated their tariffs on steel and aluminum imported from Canada and Mexico even though the underlying economic conditions they used to justify the tariffs have not changed. So, there's at least some precedent for Trump declaring victory over nothing in particular.

  • Draxiar

    This was one of my deep concerns when this thing was “elected” to the office.

  • muselet

    I think the analysis by Morgan Stanley is correct: no trade deal between the US and China will mean a global recession (at best).

    It’s terrifying to realize the health of the world economy depends on Donald Trump’s behavior.

    –alopecia