Morgan Stanley analysis says new China tariffs would lead to recession: report

If President TrumpDonald TrumpThe Memo: The Obamas unbound, on race Iran says onus is on US to rejoin nuclear deal on third anniversary of withdrawal Assaults on Roe v Wade increasing MORE 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. 


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.

The report also calculates that there is a short window of just a few months for the current tariffs to take a bite out of the economy, and cut U.S. growth in the second half of the year by over a percentage point. 
"Even though talks may continue, global corporate confidence and consequently the global economy would take a hit," according to the analysis. 

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.