May 10, 2019 - Economy

A new warning that Trump's trade war could cause a global recession

Dion Rabouin

Bank of America-Merrill Lynch's global research team predicted that "a trade war could cause a global recession" should "across-the-board tariffs on US-China trade" come to pass, analysts said in a note to clients Friday morning.

Driving the news: President Trump raised tariffs on $200 billion of Chinese goods from 10% to 25% overnight, following through on his threat from earlier this week, and could move to impose new tariffs on all Chinese exports to the U.S.

The trade war also would likely bring major changes to the policies of the Federal Reserve and European Central Bank.
Fund managers have taken notice and pulled $20.5 billion out of equities in the week ending Wednesday, according to BAML's data, and $116 billion out of equity funds so far this year. That matches outflows seen in 2016 and 2008.

Yes, but: Analysts also note an imminent trade deal should allow the global economy to continue to grow above trend — and the market outlook remains that a deal will get done, likely in the next few weeks.

Investors have largely been pricing in a positive resolution to the trade war, pushing the S&P 500 up by 15% so far this year. The index rose to an all-time high just last week.

Go deeper: The world can't afford a trade war right now

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A new warning that Trump's trade war could cause a global recession

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