There is now a serious risk that escalating trade disputes between major global players will tip the world economy into recession, warns the Financial Times editorial board in a new op-ed published Friday. The FT opinion chiefs tally a number of ominous trends as we approach the final quarter of the year, all of which are contributing to a global climate of economic uncertainty.
- New U.S. tariffs on Chinese goods are set to raise prices for American consumers and businesses which rely on Chinese imports, as well as dampening China’s own sputtering economy with decreased exports and increased unemployment. By December, when Trump’s new tariffs will take full effect, average U.S. tariffs will have doubled to 24% from 12% at the beginning of the year, and just 3% when he took office.
- Meanwhile new data shows that American manufacturing contracted for the first time in three years in August, indicating that — if nothing else — the trade war with China is doing nothing to restore U.S. industrial employment as hoped.
- Worse still is the possibility that the Trump administration will actively intervene to devalue the dollar in order to restore American competitiveness, abandoning a long-term U.S. commitment to open capital markets. This longstanding policy has underpinned both the global financial system and America’s reputation as a free market leader, whose currency has (thus far) been immune to the kind of fiddling characteristic of weaker countries and developing economies — and which would doubtless provoke countering moves by trade partners and rivals alike.
- Looking outside the U.S. the picture is even worse: FT notes that more than half the countries tracked by a leading industrial index saw manufacturing contract for four straight months — the kind of synchronized slump that heralds a global recession.
- To head off this alarming situation, the FT calls for lower interest rates at central banks and fiscal stimulus, echoing new ECB president elect Christine Lagarde. A swift end to the U.S.-China trade war is also critical to moving the global economy off this soft patch.