Trade War Could Trigger Recession says BofA

Even as growth ramps up to what could be the fastest rate since before the financial crisis, economists are worried that a trade war could tip the U.S. into a significant slowdown or even a recession.

Fears over a GDP pullback come as President Donald Trump threatens another, more severe round of tariffs aimed both at China and the European Union.



Specifically, the worry is that the duties could spark a larger global trade war that triggers inflation and kills U.S. growth just as it appears to be accelerating out of its post-crisis malaise.

“Our calculations suggest that a major trade war would lead to a significant reduction in growth,” Michelle Meyer, U.S. economist at Bank of America Merrill Lynch, said in a note. “A decline in confidence and supply chain disruptions could amplify the trade shock, leading to an outright recession. We continue to believe that the probability of a full blown trade war is low but the risks are rising and it remains a key uncertainty to our outlook.”

On the same day Meyer and her team released the report, Trump amped up the rhetoric another notch by threatening to hit European auto imports with a 20 percent tariff unless the EU relents on duties it imposes on American vehicles.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza