Trade war: Morgan Stanley warns of recession within a year

By: |
London | Updated: June 2, 2019 11:24:01 PM

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.

Recession, wall street crash,morgan stanley, Economy, Slow Economy, global Economy, Recession Hit, Business News(Reuters)

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 additional $300 billion of Chinese imports and
China retaliates with its own countermeasures, according to Chetan Ahya, chief economist and global head of economics at Morgan Stanley.

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.

While stocks have declined, investors are still overlooking the impact the trade war will have on the global macroeconomic outlook, Ahya wrote in a note on Sunday. Growth will suffer as costs increase, customer demand slows and companies reduce capital spending, he said.

As the negative effects of the tariffs become more apparent, it may be too late for political action, according to Ahya. Policies to ease the impact are likely to be too reactive and slow to take effect.

Trump on Saturday defended his decisions to impose or raise levies against imports from Mexico and China, respectively, saying “companies are moving to the US” to avoid paying the levies, and that “TARIFF is a beautiful word indeed!”

The president tweeted that the US has been the “Piggy Bank” for other countries for years. “We are no longer the ‘fools’ of the past!” he said.

Trump had harsh words for Mexico again on Sunday morning, questioning the value of talks, days before a high-level delegation from Mexico is expected to meet with US officials.

Do you know What is Cash Reserve Ratio (CRR), Finance Bill, Fiscal Policy in India, Expenditure Budget, Customs Duty? FE Knowledge Desk explains each of these and more in detail at Financial Express Explained. Also get Live BSE/NSE Stock Prices, latest NAV of Mutual Funds, Best equity funds, Top Gainers, Top Losers on Financial Express. Don’t forget to try our free Income Tax Calculator tool.

Next Stories
1RBI may cut interest rate for third time by at least 25 bps
2Demand slowdown drives 5.32% fall in gems and jewellery exports in FY19
3Engineering sector in a tight spot after US withdraws GSP benefits, says expert