Uncertainty over the trade war prompted Federal Reserve Chairman Jerome Powell to cut interest rates to instill confidence within the business community. President Trump has threatened to impose a 10% additional tariff on $300 billion worth of goods imported from China:
“A recession will come in nine months’ time if President Donald Trump goes one step further in his plan to impose tariffs on Chinese-made consumer products, a leading brokerage argues.
In a note to clients, Morgan Stanley makes the case that a recession will hit if Trump imposes 25% tariffs on some $300 billion of Chinese goods not currently subjected to tariffs. Trump has said he’ll impose a 10% tariff on those goods in September.
That’s bad enough, but tolerable, says Morgan Stanley, which makes the case that if those 10% tariffs are kept for longer than four or five months, global growth will remain weak in the range of 2.8% to 3%, despite interest-rate cuts from central banks.”
When global growth falls below 2.5%, Morgan Stanley considers it a global recession. The trade war has already negatively impacted rail traffic; for the week ending July 20th, total U.S. weekly rail traffic was down 4.9%. Businesses are shipping fewer goods cross-country via rail, which implies commerce is slowing. The trade war also made businesses more skittish. Uncertainty about the trade war could make business less likely to expand capital expenditures or increase hiring. That may not be good for the economy.