Trade dispute could lead to global recession

Trade tensions are the single biggest factor weighing on global corporate confidence today. They also pose a significant and credible threat to the global business cycle, as policy-easing measures can only offset the negative impacts up to a point. Truth be told, the window for addressing trade tensions in a way that avoids significant additional damage to the global cycle is relatively short. Indeed, developments in recent weeks have increased the risk of an extended period of escalation, with attendant downside risks to global growth.

It seems investors are underestimating the impact of trade tensions. Our (Morgan Stanley's) concerns stem from the fact that we see the transmission channels as pervasive, the impact as non-linear and any policy easing as reactive, with lagged effects. If trade tensions escalate, with the US imposing 25 percent tariffs on the remaining $300 billion of products imported from China and China responds with countermeasures, we believe the global economy will end up in recession within two to three quarters.

Trade disputes will affect global growth