Another Trump Tariff Hike Would Spark a Recession, Morgan Stanley Says

The US-China trade war, if it keeps escalating, will spawn a worldwide recession next year. So says Morgan Stanley in a research report.

Tensions between Beijing and Washington seemed to abate Tuesday as the White House said Chinese negotiators were coming to the US in September for continued talks. The S&P 500, which has slumped since last week, gained 1.3% on the news.

Given the roller-coaster nature of the talks, that optimism may prove premature. President Donald Trump has been escalating tariff pressure for months on China, which ships a little more than $500 billion in products to the US, and there’s no telling when or if he may resume.

Trump imposed 10% levies on $300 billion in goods, mainly consumer-oriented, ones, last Thursday. Last year, he put 10% duties on another $200 billion, which involved more industrial products. Then in May, Trump increased the tariffs on the first round of $200 billion in Chinese exports, to 25% from 10%.

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Should he bump up the tariffs on the new $300 billion round to 25%, then the global economy would tip into recession, Morgan Stanley said. This isn’t the firm’s first warning of the trade tiff pitching the world into an economic downturn. After Trump boosted tariffs in May, it said he risked a recession if the levies kept climbing.

“If the US were to implement 25% tariffs on all imports from China for 4-6 months and China were to respond with countermeasures,” the Morgan Stanley report read, “we believe we would see the global economy entering recession in three quarters.”

The International Monetary Fund put global growth at 3.6% in 2018 and has projected that to increase by 3.2% this year.

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Tags: China, Donald Trump, Morgan Stanley, recession, Tariffs, Trade War

The UK’s Financial Conduct Authority (FCA) has released a package of pension-related proposals, including a ban on contingent charging for pension transfer advice in a move aimed at eliminating financial adviser conflicts of interest.

When the so-called “pension freedoms” were introduced in 2015, the government’s intensions were to give consumers with defined contribution (DC) pensions more flexibility in how and when they could access their pension savings.

But the pension freedoms also gave consumers more complicated choices over how to invest their pension savings, and when to draw on them. So the government created a mandatory advice requirement to prevent members of defined benefit plans from transferring against their own best interests.

However, the FCA said it is concerned that too many of these advisers have been delivering poor advice, much of it driven by conflicts of interest in the way they are paid. It cited the practice of contingent charging – where advisers only get paid if a transfer proceeds—in particular as creating “an obvious conflict.”

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The FCA said that in some cases financial advisers were receiving ongoing fees for pension transfer advice for as long as 20 to 30 years following a transfer. The regulator said it is concerned that such a lucrative incentive could compel advisers to recommend a pension transfer when it may not be in their client’s best interest.

The FCA has proposed that advisers be required to demonstrate why any plan they recommend is more suitable than the consumer’s workplace pension plan. It is also consulting on the following proposals:

To ban contingent charging, except for groups of consumers with certain identifiable circumstances that mean a transfer is likely to be in their best interests
Where contingent charging is permitted, advisers will have to charge the same amount, in monetary terms, for advice to transfer as they charge when the advice is non-contingent
To introduce a short form of “abridged” advice that can result in a recommendation not to transfer based on a high-level assessment of a client’s circumstances. This will fall outside the proposed ban on contingent charging and should help maintain initial access to advice

Additionally, the FCA has published a feedback statement on its discussion paper on effective competition in non-workplace pensions, and said it found that many consumers are not engaged in pension decisions, and are not aware of charges they are paying. It said products and charges are often too complicated to compare, which leads to a lack of price competition.

The regulator has outlined a package of potential measures to protect consumers that include potentially requiring providers to offer one or more investment solutions, reducing charge complexity, and increasing transparency so that consumers better understand the impact of fees on their savings.

“The FCA’s supervisory work has revealed continued problems in the pensions transfer advice market,” Christopher Woolard, the FCA’s executive director of strategy and competition, said in a statement. “We want to ensure people receive suitable advice and drive down the number giving up valuable defined benefit pensions when it is not in their interests to do so.”

The FCA consultation will run until Oct. 30.

Tags: fees, Financial Conduct Authority, Pension, Pension Transfer, UK