US-China trade war takes heavier toll than expected, could wreak biggest havoc in fourth quarter, investment banks say
- Uncertainty over future policy may lead to lower capital expenditures as businesses await a resolution of trade war, Goldman Sachs said
- US economy faces rising fears of a recession, Goldman Sachs said, cutting fourth-quarter growth forecast for US by 0.2 percentage point to 1.8 per cent
“Fears that the trade war will trigger a recession are growing,” the team of Goldman economists led by Jan Hatzius and Alec Phillips said. “We expect tariffs targeting the remaining US$300 billion of US imports from China to go into effect and no longer expect a trade deal before the 2020 election.”
On Monday, UBS said that it expects the US$300 billion of tariffs to reduce China’s GDP growth by at least 30 basis points over the next 12 months. The investment bank also said that the negative effect of a US export ban on Huawei Technologies is expected to rise in the second half of this year and spill over into 2020.
“Although the White House expressed interest in continuing trade talks with China after escalating tariffs and labelling China a ‘currency manipulator’, it is not clear whether the US actually wants a trade deal,” UBS’ chief Asia and China economist Wang Tao said in a research note on Monday. “The escalations have likely hardened China's position. Although the situation can change suddenly depending on the US economy, equity market and changes in election politics, at the moment a deal looks increasingly unlikely this year or before the US election next year. Our new growth forecasts assume no deal but also no further trade war escalation.”
Bank of America Merrill Lynch said late last week that the probability of a recession has increased, with an increasing number of early recession indicators “now flashing yellow”.
The bank’s US economists said that risks are rising that the trade war “escalates further and could do so rapidly”. As a result, there are “significant downside risks” to the bank’s growth forecasts for the US and global economies.