Daily Management Review

Reuters Poll Finds US-China Trade War Increased Risk Of US Recession


Reuters Poll Finds US-China Trade War Increased Risk Of US Recession
In a poll of economists posted by Reuters, the majority of the respondents opined that the risk of an recession in the United States has been increased by the U.S.-China trade war over the last month. The economists also said that there is a 40 per cent chance of a US recession happening in the next two years.
This likelihood is an increase from a median 35 per cent according to a poll last month which was the first time that the possibility reduced slightly compared to the sentiment in December last year.
The ongoing trade war with China has been described as a “little squabble” by the U.S. President Donald Trump. However, clear signals of the economy being impacted by the trade war already are evident. The markets have also become jittery after they had settled down after a continued sell off earlier in the first part of the current year.
“I have a hard time thinking of a scenario in which a further escalation of the trade tension we currently have would not make recession risk higher,” said Michael Hanson, head of global macro strategy at TD Securities.
“We are already in a situation where the level of tariffs that are either imposed or threatened to be imposed over the next several weeks are really quite high ... and a move to basically putting tariffs of 25% on everything we import from China is a very real drag in the economy,” said Hanson.
There were a negligible number of economists in the poll who believed that the US economy could go into recession within the next one year compared to over 50 per cent of respondents believing that a recession is possible in two year’s time. 
There has also been an increase in the most pessimistic call for the probability of a recession in one year to 70 per cent from 60 per cent.
According to median forecasts from the latest monthly poll of 120 economists, there has already been a considerable loss in momentum for the US economy as forecast and is expected ot slowdown from 3.2 per cent in the first three months of the year to 2.0 per cent.
There was a sharp downgrade in the forecast for April-June from 2.5 per in last month’s poll partly because of an unexpected strong figure reported for January-March. It is forecast that by the fourth quarter of 2020, growth would slow down to 1.8 per cent below trend.
On the question of risks of a U.S. recession because of the U.S.-China trade war developments this month, almost 75 per cent of the economists opined that the risks had increased.
There is an attempt in China to shift to an economy driven by domestic demand instead of export of cheap goods. The US economy on the other hand is already reliant on consumer spending and consumption and thereby has to import Chinese goods worth hundreds of billions of dollars. That import is being hit by the Trump tariffs.
Very few economists believe this will do anything but damage the economy.
Most economists believe that the only outcome of this would be a hit to the US economy because of increased prices of those products from China for US customers which can impact consumer spending.
“There actually seems to be a belief in the White House that trade wars are both good and winnable. Delusion creates massive risks,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.
“If we have a recession, it will likely be caused by the Fed. We’re in a chronic disinflationary environment, caused by the supply side of the equation, not the demand side,” said Gary Cloud, co-chief investment officer for fixed income at FCI Advisors.