Goldman Sachs Group Inc said on Sunday that fears of the U.S.-China trade war leading to a recession are increasing and that Goldman no longer expects a trade deal between the world’s two largest economies before the 2020 U.S. presidential election.
“We expect tariffs targeting the remaining $300bn of U.S. imports from China to go into effect,” the bank said in a note sent to clients.
U.S. President Donald Trump announced on Aug. 1 that he would impose a 10% tariff on a final $300 billion worth of Chinese imports on Sept. 1, prompting China to halt purchases of U.S. agricultural products.
The United States also declared China a currency manipulator. China denies that it has manipulated the yuan for competitive gain.
The year-long trade dispute has revolved around issues such as tariffs, subsidies, technology, intellectual property and cyber security, among others.
Goldman Sachs said it lowered its fourth-quarter U.S. growth forecast by 20 basis points to 1.8% on a larger than expected impact from the developments in the trade tensions.
“Overall, we have increased our estimate of the growth impact of the trade war,” the bank said in the note authored by three of its economists, Jan Hatzius, Alec Phillips and David Mericle.
Rising input costs from the supply chain disruption could lead U.S. companies to reduce their domestic activity, the note said. Such “policy uncertainty” may also make companies lower their capex spending, the economists added.
The economic outlook has deteriorated in all parts of the world over the summer due to an escalating trade dispute between the US and China, a survey showed on Monday.
Germany’s Ifo economic institute said its quarterly survey among nearly 1,200 experts in more than 110 countries showed that its measures for current conditions and economic expectations have both worsened in the third quarter.
“The experts expect significantly weaker growth in world trade,” Ifo president Clemens Fuest said, adding that trade expectations hit the lowest since the beginning of the tariff conflict last year.
“Respondents also expect weaker private consumption, lower investment activity, and declining short- and long-term interest rates.”
US President Donald Trump said on Friday he was not ready to make a trade deal with China and even called a September round of talks into question, reviving concerns on financial markets that the dispute is unlikely to end anytime soon.
