Even as growth ramps up to what could be the fastest rate since before the financial crisis, economists are worried that a trade war could tip the U.S. into a significant slowdown or even a recession.
Fears over a GDP pullback come as President Donald Trump threatens another, more severe round of tariffs aimed both at China and the European Union.
Specifically, the worry is that the duties could spark a larger global trade war that triggers inflation and kills U.S. growth just as it appears to be accelerating out of its post-crisis malaise.
“Our calculations suggest that a major trade war would lead to a significant reduction in growth,” Michelle Meyer, U.S. economist at Bank of America Merrill Lynch, said in a note. “A decline in confidence and supply chain disruptions could amplify the trade shock, leading to an outright recession. We continue to believe that the probability of a full blown trade war is low but the risks are rising and it remains a key uncertainty to our outlook.”
On the same day Meyer and her team released the report, Trump amped up the rhetoric another notch by threatening to hit European auto imports with a 20 percent tariff unless the EU relents on duties it imposes on American vehicles.