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A global recession could arrive by early 2020 if the US-China trade war continues, says Morgan Stanley

Ben Winck , Business Insider US
 Aug 05, 2019, 07:17 PM
US President Donald Trump (L) and China's President Xi Jinping. (Getty)
  • An escalation of the US-China trade war could send the global economy into recession in just "three quarters' time," Morgan Stanley's chief economist said in a Monday report.
  • The analyst noted that an increased US tariff of 25% on Chinese imports for four-to-six months could catalyze a global pullback, as weak corporate sentiment and slowed domestic demand already threaten the economy.
  • The report follows failed negotiations between the two nations and President Trump's subsequent announcement of a new set of tariffs set to hit Chinese imports in early September.
  • Visit Business Insider SA for more stories.

An escalation of US tariffs could spark a global recession in just nine months time, according to Morgan Stanley's chief economist.

A Monday report from the bank highlighted year-over-year trade contraction brought on by weak export data, a slowdown in domestic demand, and renewed trade stress. Continued retaliation between the US and China could be the last nail in the coffin for the world's economy, chief economist Chetan Ahya said in the report.

"Indeed, if tariffs go up to 25% for all imports from China for 4-6 months, it will heighten the risks to the cycle and the global economy could enter a recession in three quarters' time," Ahya said.

US President Donald Trump announced a new set of tariffs on August 1, hitting $300 billion worth of Chinese products with 10% tariffs starting September 1. About $250 billion of Chinese imports already fall under a 25% tariff.

The new duty would leave nearly all Chinese imports impacted, and escalation to a 25% rate from the anticipated 10% tariff would risk recession by summer 2020, Morgan Stanley said.

The announcement followed trade negotiations between US Trade Representative Robert Lighthizer, Treasury Secretary Steven Mnuchin, and Chinese officials in late July. Though a deal was not met during the visit, the White House said July 31 it expects negotiations to continue in early September.

US stocks opened lower Monday morning after China allowed its currency to fall to an 11-year-low. The move will allow China to withstand the economic harm brought on by the trade war, and hints the nation is far from backing down in the two-year-long conflict.

The People's Bank of China attributed the currency shift to increased tariffs, but didn't explicitly mention the US.

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