Trade War Causes Fear of Recession

The US-China trade war had been heating up with retaliations from both sides.  As previously reported, President Trump had announced an additional 10% tariff on about $300 billion of Chinese goods.  In response, China allowed their currency to fall at its lowest since the recession to 7 yuan per one dollar.  In addition, China halted their agricultural purchases which are hurting our local farmers.  Since then, the stock market has been on the decline and now economists say we’re at risk of a recession.

Goldman Sachs, a large investment banker, predicts that this on-going trade war could cause a recession.  With no end in sight, this very well could happen.  In the latest comment regarding the war, Trump says he’s “not ready to make a deal” believing he is winning this war.  Now economists do not believe a deal could be reached before the 2020 election.  Goldman Sachs is predicting the GDP growth to a mere 1.8 percent in the fourth quarter.  Along with the new tariff Trump has imposed, set to take affect September 1st, analysts at Goldman Sachs believes our GDP will only be at 0.7%. 

One economist believes we could be in a recession in as little as three quarters.  For those not counting, we’re in the middle of the third quarter of the year.  In three quarters, or nine months, we’re looking at May 2020.  That economist is from Morgan Stanley.  Morgan Stanley, another large banker, is looking at the ramifications of the trade war on a more global scale.  The current tariffs on China range between 5-25% as previously reported.  If Trump decides to raise all tariff amounts to 25%, not including the current new tariff, the global economy will be in a recession.  As reported earlier, the new tariff will impact consumer goods whereas previously they had mostly impacted our manufacturers.  Now we will be paying more for everyday goods such as clothing and even tech like the iPhone. 

Stocks continue to tumble as uncertainty looms.  Today the Dow fell 400 points, or 1.6%.  The Nasdaq and S&P also fell nearly 1.5%.  Many stocks that depend on Chinese goods fell including Caterpillar, Boeing, and Deere.  US treasury bonds also fell.  The 10-year rate fell to 1.7% as investors rushed to buy safer assets.  As previously reported, the price of gold continues to climb.  Today, the price of gold is now $1500 per ounce.  Globally, stocks are on the decline as well – which is what is sparking the global recession from Morgan Stanley. 

All we can do now is wait and hope Trump and China can come to terms on the trade war.