With President Donald Trump and Chinese leader Xi Jinping set to meet at the G-20 conclave Saturday, Morgan Stanley CEO James Gorman warned that an all-out trade war would severely harm the world’s economy. Even more ominous, he doubted the solution to the tensions would be easy to achieve.
His view was typical among Wall Streeters: “We can’t have a trade war,” Gorman told CNBC. “It will have a devastating effect to the global economy.”
Much of Wall Street views the trade tiff with alarm. At some point, financial industry strategists contend, the tit-for-tat tariffs are bound to pinch. “So net exports are likely to subtract about three-quarters of a percent from economic growth for the remainder of 2019,“ according to Brad McMillan, chief investment officer for Commonwealth Financial Network, in his outlook for this year’s second half.
John Stoltzfus, the chief investment strategist at Oppenheimer Asset Management, wrote in a note to clients, after returning from a tour of China, that the first year of the conflict has been less harsh on the US and China, with a 2.9% gross domestic product (GDP) growth in the US and 6.5% in China. But, he added, “year two of the trade war might not be so kind to either country.”
Right now, Trump has imposed 25% tariffs on $200 billion worth of imports from China, and has threatened to expand that to the rest of Chinese goods entering the US, to the tune of $300 billion. China has responded in kind, although American merchandise shipping to China is lower, $130 billion. The two nations’ leaders are to meet at the gathering of the world’s premier economic powers in Osaka, Japan.
Morgan Stanley’s Gorman wasn’t optimistic about a grand bargain being struck when Trump and Xi meet. “This is going to go on, these discussions, for a decade,” Gorman said. “This is a resetting of a relationship with what is now the second–largest economy in the world; China is a $12 trillion economy with all its trading powers.”
Should a cease fire be declared in the trade war, that would be a tonic for the global economy, noted Russell Investments in its recent investment outlook. The firm’s strategists pointed out that Trump should be concerned with the 2020 election season looming and might be ready to cut a deal beforehand.
“That would be logical, given that his re-election may depend on support from Midwest states that will experience the most economic pain from rising tariffs.,” they wrote. Nevertheless, the report went on, Trump’s actions to date suggest that he is not inclined to back down.