WASHINGTON — If the U.S. economy goes into a recession, it will be because of a failure to stop the trade war with China, according to one financial analyst.
“A continued trade war with China would certainly be the catalyst if we do experience a recession. The Trade War is extremely serious — the biggest issue facing the underlying economy and the stock market,” Robert Johnson, a professor of finance at Creighton University’s Heider College of Business in Omaha, Neb., told TMN in an email on Monday.
He added: “The greatest impact is the damper it puts on potential capital expenditures by business. The uncertainty brought on by the trade war makes it very difficult for corporations to engage in true strategic planning. And, President Trump’s negotiating style adds even more uncertainty and volatility to an extremely volatile situation.”
Johnson said that absent the trade war, “there would be very little chance for the U.S. economy to experience a recession in the near term.” He said that even though the U.S. economy is slowing down, it is “still positive in a world in which economic conditions are worsening.”
The U.S. has arguably been engaged in a trade war with China since March 2018. At that time, the Trump administration imposed tariffs on aluminum and steel imports. All aluminum and steel suppliers were targeted but the tariffs were imposed primarily to punish China for its aggressive trade practices. China is known for “dumping” or devaluing the price of its products in order to create monopolies in foreign markets. China also is known for stealing U.S. intellectual property.
Less than a month after the U.S. imposed the aluminum and steel tariffs on China, Beijing responded with a 25% tariff on more than 100 U.S. products. The conflict has escalated since then with both nations imposing new rounds of tariffs. It is unclear when the trade war will end.
President Donald Trump told reporters at the G7 summit in France on Monday that he believes China is ready to restart trade talks. His remarks come just three days after China announced that it will impose $75 billion worth of tariffs on U.S. goods. The tariffs are scheduled to go into effect on Sept. 1.
U.S. markets rallied after Trump’s remarks. As of 1:10 p.m. EDT Monday, the Dow Jones Industrial Average (DJIA) was up 270 points from its opening.
On Aug. 14, investors panicked after the Dow dropped 800 points and the bond market signaled its first recession warning since 2007. The warning came after the price of 10-year Treasury bond yields dropped below the price of 2-year Treasury bond yields.
Johnson said the yield inversion does not mean a recession is definite.
“The fact that the yield curve briefly inverted is taken by many to infer that a recession is imminent. Unlike the physical sciences, the social sciences are as much art as science. While certainly troubling, a temporarily inverted yield curve is not an automatic harbinger of a recession.”