When the trade war between the US and China started heating up in July, the International Monetary Fund warned it could potentially send the global economy into recession. The IMF said the tit-for-tat with tariffs could end up damaging the entire global economy.
In August, trade negotiators from the two countries tried to patch up differences, only to leave the negotiating table empty handed, making it likely that the trade war will continue escalating.
White House Deputy Press Secretary Lindsay Walters said in a statement after the working-level talks in Washington that there’s a need to address “structural issues in China such as those identified in the Section 301 report.” The report she mentioned, released in March, accused the Chinese of violating intellectual property rights through such means as forced technology transfers from American companies and hacking. That the White House revisited the basis for imposing tariffs signaled the frustration the US side is feeling.
Beijing, however, asserted that the technology transfers are voluntary transactions between companies and not the government’s concern. It also rejected Washington’s demand to scrap the “Made in China 2025” high-tech manufacturing initiative.
With no agreement in sight, US President Donald Trump went ahead with his hardline approach and imposed additional 25 percent tariffs on another $200 billion of Chinese imports. Beijing came out with a list of $60 billion in American imports to target with retaliatory duties.
Many analysts have suggested that the impact of the US-China trade skirmish will be relatively muted on the Chinese economy, noting that exports to the US do not hold a commanding presence in China’s economic portfolio. But that line of thinking does not take into account how tariffs will affect business sentiment, investment and growth in China, according to a J.P. Morgan analyst. On the other side, the tariffs so far have not undercut a robust US economy, but they are keeping it from growing even more robustly.
Here’s the disturbing part: A recent survey by the National Association for Business Economics (NABE) said that two-thirds of business economists in the US expect a recession to begin by the end of 2020, while a plurality of respondents say trade policy is the greatest risk to the expansion. Forty-one percent of the respondents said the biggest downside risk was trade policy, followed by 18 percent of respondents citing higher interest rates and the same share saying it would be a substantial stock-market decline or volatility. “Trade issues are clearly influencing panelists’ views,” David Altig, Federal Reserve Bank of Atlanta research director and NABE’s survey chair, said in a statement.
Before Bloomberg published NABE’s survey, Bank of America Merrill Lynch US economist Michelle Meyer warned in a CNN article that a “major global trade confrontation would likely push the US and the rest of the world to the brink of a recession.” Here’s how the dominoes could fall: First, businesses would be hit with higher costs triggered by tariffs. Then, companies won’t be able to figure out how to get the materials they need. Eventually, confidence among executives and households would drop. Businesses would respond by drastically scaling back spending.
Meyer said that a wave of tariffs would hurt consumer sentiment and hurt business supply chains by causing “bottlenecks” and disruptions. “A decline in confidence and supply chain disruptions could amplify the trade shock, leading to an outright recession.”