Tariffs on all Chinese goods: "expect recession"

clock • 2 min read

It is questionable if the tit-for-tat between the two largest economies sets the right tone to address a global recession which seems to be imminent.

The decrease of trade within Europe reflects the uncertainty on where the global economy will go. The combination of Brexit and the US-China trade war show the first impact on Europe's trade. Suppliers and buyers are holding off on investments, while buyers are also selling off any oversupply.

In addition, looking at the earliest indicators to project economic trends, port activity and payment behaviours, there is less cargo in shipping and air across the northern hemisphere. We also have information that the payment behaviour of Chinese buyers has deteriorated since the end of 2018. Buyers not only pay late but also a significant amount of companies have defaulted.

Alongside Brexit and the trade war, the severe protests in Hong Kong and tech war between South Korea and Japan will further slow down global trade. Argentina is also struggling, which may be a small economy but adds to the uncertainty in Latin America. Singapore also reported a decrease in GDP in Q2 which usually serves as an indicator for all of Asia. Meanwhile in GDP is down in the UK, Italy and Germany - the engine of the European region.

The list of negative news is too long to reverse the destructive sentiment felt across the globe. This is confirmed by the yield curve inversion, which usually serves as an indicator for an upcoming crisis.

We anticipate that these events will impact European trade in future months and lead to a significant cool down of the global economy. If tariffs imposed by the US on Chinese goods increase to 25% on all goods, we expect the global economy to slide into recession.

 

Kerstin Braun is president of Stenn Group, a global provider of trade finance