What was feared by many for some time has now been spoken of by the economists at Goldman Sachs that the ongoing trade war between China and the US could potentially lead to a recession. What’s more, they have even quantified it by claiming that the forecast for the rate of growth of the US economy in the fourth quarter of this year is being down-scaled to 1.8%, 20 basis points lower than predicted earlier. The three economists from Goldman Sachs Group Inc said in a note to clients that this is as a result of the dispute between the two giants.
The US President has said he will impose a 10% tariff on imports from China on a basket of products the value of which is placed at $300 billion. This is the second instalment and will come into force from September 1 this year. Following this, China has promptly retaliated cancelling some of its orders with US firms for supply of agricultural products.
The way the economists have seen this disruption is that those manufacturing companies in the US which depend on Chinese components and other inputs will try and rework their production plans and may cut down on production. This will ultimately lead to a recession kind of situation. Many US companies could postpone their capital expenditure even.
Apart from this direct action by the US in imposing a penal tariff, the Chinese side is also accused by the US of manipulating its currency. Obviously, China says it has not engaged in any such manipulation. At least is says it has not done it for any competitive gain.
It is over a year now and this tug-of-war has been going on. Subsidies, technology, tariffs, intellectual property and cyber security are some of the areas where the two countries have been at loggerheads with each other.
This is an election year in the US with the voting to take place next November. How much of an impact the slowdown in the economy, if it comes about as predicted, will have on the political landscape remains to be seen.