The world’s two largest economies have locked in a bitter trade war for several months, with both sides slapping tit-for-tat tariffs on hundreds of billions of dollars of goods. In the space of eight months, the US has imposed punitive tariffs on $250 billion worth of imports from China. Beijing has retaliated with tariffs of their own on $110 billion worth of American goods, including soybeans and other commodities. But now Moody’s Analytics Chief Economist Mark Zandi has warned the trade war could send the global economy spiralling into recession if a resolution is not found without three months.
Mr Zandi described current business sentiment across the globe as “extraordinarily fragile” as he described a global recession as “highly likely” should the trade war continue to escalate.
Speaking to CNBC, he said: “Businesses are really on edge and I think it’s because of this trade war.
“And if it’s not settled in the next couple (to) three months, I think a global recession is highly likely.”
The warning from Mr Zandi comes after the World Trade Organisation (WTO) said world trade shrank by 0.3 percent in the fourth quarter of 2018 and is likely to grow by 2.6 percent this year.
This is slower than 3.0 percent growth in 2018 and below a previous forecast of 3.7 percent.
In its annual forecast, the WTO said trade had been weighed down by new tariffs and retaliatory measures, weaker economic growth, volatility in financial markets and tighter monetary conditions in developed countries.
WTO Director-General Roberto Azevedo told a news conference that the lower forecast was no surprise, given the trade tensions between the United States and China.
He said: ”US-China trade is about three percent of global trade.
“Automobile trade globally is about eight percent of global trade.
“So you can imagine that the impact of automobile tariffs is going to be bigger than the impact of the US-China trade conflict.
“I think it’s pretty clear that any automobile tariff would likely have bigger knock-on effects through the global economy than what we see from the US-China conflict.”
US President Donald Trump said on Friday that trade talks with China were going well, but cautioned that he would not accept anything less than a “great deal”.
American Treasury Secretary Steven Mnuchin and US Trade Representative Robert Lighthizer were in the Chinese capital for the first face-to-face meetings between the two sides since President Trump delayed a scheduled increase in tariffs.
The talks are set to resume next week in Washington with a Chinese delegation led by Vice Premier Liu He.
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