11 years after the global financial crisis
took place, the global economy is once again experiencing an overall slowdown.
The problems faced by the global economy are mostly brought on by man-made
causes. The financial crisis in 2008 was caused by a problem in the financial
system, yet the current global crisis we are facing now is to a considerable
extent, a "man-made disaster" caused by extreme policies. One of the most
obvious examples is the global trade war initiated by the Trump administration.
Taking a step back to look at the bigger
picture, the cause of the trade war is related to the problems faced by
globalization. However, regardless of how intense the trade war turns out to
be, it would be difficult to reverse and completely subvert the general trend
of globalization. Therefore, the Trump administration's insistence on a trade
war has inflicted great damage upon the global economic system. The trade war
is not only happening between the United States and China, the two largest
economies in the world. The United States also extended its trade battles to
Europe, Japan, Mexico, India and other countries. This all-rounded assault
strategy is not only not helpful to the United States, but also drags down the
Many investment bank economists have begun
to issue warnings the global economy. Chetan Ahya, chief economist at Morgan
Stanley, warned that if the U.S.-China trade disputes further escalate, "we
could end up in a recession in three quarters". According to Ahya, "investors
are generally of the view that the trade dispute could drag on for longer, but
they appear to be overlooking its potential impact on the global macro
outlook". These would include the increase in tariffs, which will lead to
increased costs, slower consumer demand, and corporate cuts in capital
expenditures, and all these factors will affect economic activity. The global
economy may fall into recession as soon as nine months later. He urged
investors not to underestimate the impact of the escalation of trade war on the
global economic cycle.
Goldman Sachs lowered the U.S. economic
growth forecast for the second half of the year from 2.5% to 2%. It is expected
that the Federal Reserve will not be able to refuse cutting interest rates.
Goldman Sachs noted that there is now a 60% chance of the U.S. placing a new
10% tariff on the final $300 billion of Chinese imports, instead of the earlier
40% chance. In addition, there are also more than a 50% chance of the States
imposing 10% of tariffs on all Mexican products. The resulting possibilities
are that the U.S. economy will slow down to 2% in the second half of the year,
and the chances of the Fed's interest rate cuts will increase.
Economists at JPMorgan Chase also expect
that the chances of the U.S. economy entering the recession in the second half
of this year will increase sharply from a 25% chance a month ago to 40% now,
and the global economy will be significantly more sluggish in the long-term
trend during the second half of the year.
The Fed's internal concerns about the
economic slowdown are also increasing. St. Louis Federal Reserve Bank President
James Bullard said that the uncertainty of global trade is likely to slow down
the economic growth beyond the expectations. He cited the inverted yield curve
reflects the current high policy interest rates, and that the Fed may soon have
reason to cut the rates. Fed Chairman Jerome Powell's latest speech on June 4
made it clear that the Fed will take appropriate measures to maintain a sustained
economic expansion. He stated that, "we do not know how or when these (trade)
issues will be resolved … we will act as appropriate to sustain the (economic)
The strong stance of the Fed chairman
immediately stimulated a rise in the capital market, but whether this
short-term upswing can continue is questionable, as policy stimulus will not be
able to bring changes in economic fundamentals. As Morgan Stanley warned, the
damage of the trade war on the economy is pervasive. Even if central banks
around the world stimulate the economy with loose monetary policies, it will
cause trade activities to take time in order to rebound due to the lagging
effects of the loose monetary policy. Hence, the warning of a global recession
is not something that is being exaggerated.
The impact of the trade war as felt by
entrepreneurs is different from that felt by economists, but its conclusions
are the same. Hon Hai Group's chairman Terry Guo warned that the world's
economy will change dramatically in a matter of months or weeks, and that a
"tsunami" bigger than the financial crisis is brewing. Guo learned that many
SMEs in the global industrial chain have reported that they are not getting
orders. The seriousness of this problem has exceeded everyone's expectations.
He bluntly said that if the United States and China do not cease the disputes,
the impact in the future will be unimaginable. He also warned that it is not
only the manufacturing industry that is affected, as stock prices, the exchange
rate, SMEs and even the future consumer economy will be greatly impacted. Gou
revealed that he made a lot of calls to Hon Hai's customers and suppliers in
the United States and Japan, as well as to economists and financial scientists,
and everyone shares the same pessimism about the current economy.
Final analysis conclusion:
Dynamically tracking the progress of the
trade war and the changes in the global economy will show that the dark clouds
of an impending global economic recession are becoming denser. If the trade war
between China and the United States does not stop urgently, and if the
agreement is not reached through negotiations, the outlook for the global
economy will be quite pessimistic. In case that there is any destructive intervention,
there would be a bigger possibility for the world economy to face a synchronized recession.