Fears rise that Trump’s trade war is leading to recession

(Reuters) – 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 US 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.

(Reporting by Kanishka Singh in Bengaluru; editing by Grant McCool)

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