Analysis: Trade war with China could trigger US recession as early as 2019

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Direct damages to China and the US due to the trade war will be similar, analysts estimate. For the American and Chinese economies, consequences would result in the loss of 0.2 to 0.3% of annual GDP, and although this is not so serious, the US economy could collapse as early as the first half of 2019, believes a Russian expert.

Analysts have estimated economic consequences in light of recent US and Chinese actions: in response to Trump’s statements about imposing 25% tariffs on Chinese imports, China has announced symmetrical measures in relation to US goods.

The situation is extremely tense, markets are in a nervous state, even though the scenario of the US-China trade war has been calculated,” said financial analyst Nikita Maslennikov.

According to him, there are chances that Trump’s administration, inspired by short-term economic successes, will close its eyes to risks and long-term consequences, said Maslennikov.

By 2019, the trade war will be capable of provoking a recession in the US. As a result, what we do not least wish to happen is the repeat of the crisis of 2008 and 2009,” he said, adding that China understands very well the risks they will have to deal with.

Direct losses to the US and Chinese economies would be similar. However, the volumes of risks to China can pose a serious problem. The US has a more developed financial system, its economy is more geared to global financial markets than the Chinese. As such, China has the potential to seek appropriate commitments and decisions, according to Maslennikov.

“On the other hand, one can understand the Chinese positioning. How much time can be played in this game of poker – everything that is agreed to by the US is reevaluated in two or three weeks. One may or may not trust what was agreed with the Trump administration,” he continued.

The side effects of this war will be largely negative for the economies of the economic partners of China and the US, which in fact cover the entire Pacific region. So a new recession could start earlier than expected.

According to an analyst and professor at the Moscow State Institute of International Relations, Ekaterina Arapova, in a long-term perspective, this trade war can cause changes in China’s economic system, that is, the transformation of domestic consumption as the main incentive of the economy, thus developing innovative industries.

“In a way, this trade war will contribute to the acceleration of all these processes in the Chinese economy as an additional stimulator. At the moment, China can not introduce import quotas for US state-of-the-art technology products because it relies on technologies from American and other developed countries,” she said.

Arapova added that measures restricting imports of raw materials could also encourage the development of alternative energy to the Asian giant.

It is noteworthy that the Chinese response measures target the production of the US states that voted the most for Trump during the presidential elections. Tariff affected products include soybeans, corn, wheat, rice, sorghum, beef, pork, poultry, fish, dairy, nuts and vegetables.

According to data from Bloomberg Intelligence , the total value of US coal exported to China last year was US $395 million. Today, China is one of the major buyers of US oil. This purchase helps stimulate the growth of US exports.

Meanwhile, for China, as the country is the world’s largest oil importer, US oil is only a small part of its energy balance. The largest suppliers are Saudi Arabia and Russia. In this regard, analysts believe that Chinese countermeasures can painfully affect US commodity exporters.

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