If President Trump proceeds with his proposed 25 percent tariffs on $300 billion of Chinese imports, he would tip the global economy into recession, according to a Morgan Stanley analysis.
Last week, Trump threatened to add the tariffs on top of the import taxes he has imposed on $250 billion worth of Chinese imports as talks for a new trade deal hit a road block.
“If talks stall, no deal is agreed upon and the U.S. imposes 25% tariffs on the remaining ~US$300 billion of imports from China, we see the global economy heading towards recession,” the Morgan Stanley analysis says.
{mosads}That would mean a loss of 2.5 percent from the global economy.
The analysis said the Federal Reserve would respond to such an event by dropping rates back down to zero by mid-2020, while China would ramp up stimulus to 3.5 percent of gross domestic product.
If the threatened tariffs help Trump strike a favorable deal with China, it could boost the economy — and his chances of reelection.
But if no bargain is reached, the pressure strategy could backfire, imposing high costs on U.S. consumers and taking the sheen off the economy Trump frequently cites as a central achievement.
Earlier this month, Trump increased the tariff rate on $200 billion of Chinese imports, saying Beijing had backed off agreed-upon positions in the negotiations. China responded with an increase of its own tariffs on $60 bililon of U.S. goods, which will are set to go into effect on June 1.
Trump is scheduled to meet with Chinese President Xi Jinping at the upcoming Group of 20 summit in Japan next month.