Global financial markets have been roiled, but not yet upended, by the escalating US-China trade war. The next round of tariffs could be the tipping point into crisis, according to a China specialist at Europes biggest asset manager.
“This is where the pain threshold is,” Qinwei Wang, a senior economist at Amundi in London, said in reference to the Trump administrations consideration of 25 per cent duties on the remaining $300-billion or so of Chinese imports not yet affected by tariff hikes. There would be a chain reaction, “and everyone will suffer. A global recession is a real risk,” he said.
The yuan could tumble as much as 10 per cent, shooting through 7 per dollar if the fresh tariffs are enacted, Wang said in an interview. That would disrupt emerging markets and eventually hit the US economy via corporate earnings and a broad stock sell-off, he said.
“The yuan will fall, and thats not going to be the case of China using the currency as a weapon — it will be let go because the government doesnt have enough policy room to handle the shock,” said Wang, who worked as an economist at Chinas central bank earlier in his career.
While Wangs base case is for a US-China trade deal, he warned that if talks dont resume in the wake of the G-20 summit in late June — where Presidents Donald Trump and Xi Jinping could meet — some investors may start pricing in the worst-case scenario.