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More tariffs on China could trigger a global recession

The containers are stacked on a ship at the Port of Long Beach in Long Beach, California, on July 6, 2018, including some from China Shipping, a conglomerate under the direct administration of the State Council of China.

Frederic J. Brown | AFP | false images

According to Morgan Stanley, the most precise tariffs in the trade war between the United States and China could establish a global economic recession.

"If the talks stall, an agreement is not agreed and the US imposes tariffs of 25% on China's remaining $ 300 billion of imports, we see that the world economy is heading towards recession," Chetan Ahya said. , chief economist at Morgan Stanley and global head of economics. He said in a note on Monday.

President Donald Trump has applied higher tariffs, from 10% to 25%, on Chinese products worth $ 200 billion and China retaliated by raising tariffs on US $ 60 billion products from June 1 . Trump had also threatened to impose 25% Tariffs on an additional $ 325 billion of Chinese products "shortly".

The escalation of commercial tensions provoked shocks in the financial markets. The S & P 500 has fallen by 3.4% since the Trump tariff threat, while the Dow Jones Industrial Average has fallen around 800 points. Commercial leaders Caterpillar and Boeing have been under pressure and chip makers with high exposure to revenue in China also suffered a major blow in the midst of the trade war.

If a trade resolution was not reached between the two largest countries in the world, central bankers would adjust their monetary policy to support the deterioration of the economy, Morgan Stanley said.

The economist predicted that the Federal Reserve would cut rates to zero by the spring of 2020. China would again increase its fiscal stimulus to 3.5% of GDP, Ahya said.

"But a reactive policy response and the usual delays in the transmission of policies will mean that we will not be able to avoid tightening financial conditions and a full-blown global recession," Ahya said.

The economist also warned that investors could be underestimating the impact of the trade war, since China could put "non-tariff barriers such as restricting purchases." In addition, companies may not be able to fully pass on the higher cost to consumers, Ahya said.

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