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More tariffs on China could trigger a worldwide recession



Containers will be stacked on a ship at Long Beach Harbor in Long Beach, California on July 6, 2018, including some from China Shipping, a conglomerate under the direct administration of the Chinese State Council.

Frederic J. Brown | AFP | Getty Images

According to Morgan Stanley, more tariffs in the US-Chinese trade war could prepare the world economy for a recession.

"If the talks come to a standstill, no agreement is reached, and the US levies 25% duty on the remaining $ 300 billion in imports from China, the global economy is going into recession," said Chetan Ahya, chief economist at Morgan Stanley and global business leader. said in a note on Monday.

President Donald Trump beat higher tariffs ̵

1; from 10% to 25% – on Chinese goods worth US $ 200 billion, and China retaliated by charging US $ 60 billion in tariffs on US goods. Raised the dollar up to 25%. from the 1st of June. Trump also threatened to impose 25% tariffs on additional $ 325 billion of Chinese goods soon.

The escalating trade tensions shocked the financial markets. The S & P 500 has fallen 3.4% since Trump's tariff threat, while the Dow Jones Industrial Average has fallen by about 800 points. Caterpillar and Boeing's trading decisions were under pressure and chipmakers with high exposure to China also suffered a major blow in the trade war. Monetary policy to shore up the deteriorating economy, Morgan Stanley said.

The economist predicted that the Fed would cut interest rates to zero by spring 2020. China will once again increase its fiscal stimulus to 3.5% of GDP, Ahya said.

"However, a reactive policy response and the usual delays in policy delivery may mean we can not prevent the tightening of the financial situation and a complete global recession," said Ahya.

The economist also warned investors The effects of the trade war could be underestimated as China could establish "non-tariff barriers such as the restriction of purchasing". In addition, companies may not be able to fully pass on the higher costs to consumers, Ahya said.


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