Goldman Sachs warns of looming recession

Investment bank Goldman Sachs is warning that President Donald’s Trump’s trade war with China is increasing the odds of a recession, reports Martha C. White of NBC News.

In a research note released Sunday, Goldman Sachs chief economist Jan Hatzius said, “We have increased our estimate of the growth impact of the trade war.” Fourth-quarter growth could drop to 1.8 per cent, according to the investment bank, which calculated the cumulative hit the trade war has dealt to the nation’s gross domestic product at 0.6 percent.

“Fears that the trade war will trigger a recession are growing,” Hatzius said.

The Trump administration had planned on Sept. 1 to levy a 10-per=cent tariff on the final $300 billion of Chinese imports to the United States, including consumer goods such as clothes, shoes and electronics. Relief hit the markets later in the day when the Office of the U.S. Trade Representative announced a delay.

Mark Zandi, chief economist at Moody’s Analytics, said the trade war with China already has eliminated 300,000 jobs and reduced the GDP growth by 0.3 percentage points.

Some theorized that last week’s announcement accusing China of manipulating its currency could be a pretext to levy additional trade sanctions. Earlier, Trump had threatened tariffs of 25 per cent, rather than 10 per cent, on that $300 billion in imports.

Were events to unfold that way, the results would be disastrous, Zandi predicted. “He’s likely got a recession on his hands,” he said.

For much of Trump’s presidency, the market has bounced back after positive tweets or other indications that a deal with China and an end to the trade war could be near. Zandi said Trump risks draining this reservoir of goodwill dry.

“I think he’s playing with fire, because at some point, people just aren’t going to trust what he’s going to say. At some point, the recession dynamics take on a life of their own,” he said.

However, later in the day,  stocks surged almost two per cent as the Trump administration said it would delay 10-per-cent tariffs on some Chinese products, including laptops and cell phones, driving a five-per-cent surge in shares in iPhone maker Apple Inc. (https://business.financialpost.com/news/economy/u-s-to-delay-china-tariffs-on-some-products-including-laptops-cell-phones)

The Office of the U.S. Trade Representative said tariffs would also be delayed until Dec. 15 on “computers, video game consoles, certain toys, computer monitors, and certain items of footwear and clothing.”

That eased the concerns of a trade war-driven slowdown in global growth that have dominated two weeks of volatile trading on Wall Street, since Trump announced a new round of tariffs on Aug. 1.