How the US-China trade war could spark a global recession

President Trump's trade war with China is about to go global.

Trump has spent pretty much his entire presidency trying to negotiate a trade deal with China, with both countries levying tit-for-tat tariffs all the while. And while those tariffs have mainly hurt American farmers so far, a new Morgan Stanley analysis published by Reuters suggests they could turn into a problem for the whole world.

After a brief hibernation, trade talks with China started up again earlier this month. And in the middle of those discussions, Trump upped a 10 percent tariff on $200 billion worth of Chinese exports to 25 percent, leading China to, of course, retaliate. If that pattern continues, specifically "if talks stall, no deal is agreed upon, and the U.S. imposes 25 percent tariffs on the remaining circa $300 billion of imports from China," then "we see the global economy heading towards recession," a Morgan Stanley analyst wrote in a Monday memo. The Federal Reserve Board would then have to cut interest rates down to zero, the analyst predicted.

The Week

Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.

SUBSCRIBE & SAVE

Sign up for The Week's Free Newsletters

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

Sign up

Back in the states, the Peterson Institute for International Economics estimates Trump's current tariffs translate to an average tax hike of $550 for each American family, Politico reports. Extending that tariff to $500 billion worth of goods could lead to a $2,200 tax spike for a family of three. That effectively erases the $800 average tax cut U.S. families saw under Trump's Tax Cuts & Jobs Act. Making matters even worse, companies including Walmart are warning that ongoing tariffs will just lead to higher consumer prices. Read more about the everyday negatives of Trump's tariffs at Politico.