The prolonged trade war between the United States and China has been one of the most damaging diplomatic and economic developments over the past few months. Despite the hope that the issue was going to be resolved, all talks broke down last month and soon enough, the problem escalated as retaliatory tariff war commenced between the two nations. However, leading investment bank, Morgan Stanley has now stated that if the trade war is escalated further, then there is a possibility of a global recession within a year.
The chief economist of Morgan Stanley, Chetan Ahya, stated in a noted,
Investors are generally of the view that the trade dispute could drag on for longer, but they appear to be overlooking its potential impact on the global macro outlook.
Last month the United States raised tariffs on $200 billion worth of Chinese goods by 25% and had threatened to raise tariffs on goods worth $350 billion more. The Morgan Stanley chief economist stated that at this point in time, it is tough to figure out the direction that the trade war is going to take. However, we went on to add that if it continues unabated, then it could plunge the global economy into recession in three or four quarters.
The stock market performed poorly after the tariffs were raised and Ahya also went on to point out that any financial stimulus from the government would not be enough to stop a recession. He said,
Given the customary lag before policy measures impact real economic activity, a downdraft in global growth appears inevitable.
On the other hand, it has also come to light that manufacturing activities in Asia have also suffered due to the prolonged trade war between the United States and China. Policymakers in Asia are aware of the fact that a global economic recession could well be on the horizon and the sentiment perhaps echoes that of Ahya. The outlook in China has continued to be pessimistic due to a drop in factory output and shrinking profits. An expert stated that global trade and demand is being affected by the trade war, and it could eventually lead to a recession in the global economy.