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%.

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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