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Fears rise over US-China trade war fallout: Goldman Sachs

13 August 2019

"We have increased our estimate of the growth impact of the trade war", said Goldman Sachs chief U.S. economist Jan Hatzius in a note to clients Sunday.

Golman Sachs has lowered its USA growth forecast for Q4 2019, by 20 basis points to 1.8 percent, due to the trade tensions having a larger-than-expected effect.

"We expect tariffs are concentrating on the remaining $300bn of USA imports from China to enter impact", the bank said in a be aware sent to clients.

Earlier this month, Trump announced that he would impose a 10% tariff on an additional $300 billion of Chinese goods to the USA from September 1, a move that prompted China to respond by suspending purchases of US farm products.

The move by Trump was in response to China allowing its currency to weaken against the dollar, with the Chinese yuan hitting the $7 landmark, making its exports cheaper.

The People's Bank of China, however, denied using their currency to undermine the United States position and blamed fall in the Yuan on the trade war and disrupted economy. However, he recognizes the minimum one thing that would throw the economy off track: the Trade War. "Fears that the trade war will trigger a recession are growing", he says.

"We have increased our estimate of the growth impact of the trade war".

The US investment bank said it no longer expects a trade deal before the presidential election next year as threatened new tariffs take effect.

"The policy uncertainty effect may lead firms to lower capex spending as they wait for uncertainty to resolve".

Rising input costs from the supply chain disruption could lead US companies to reduce their domestic activity until the trade tensions are resolved, the note said.

Senior China Economist at Capital Economics, Julian Evans-Pritchard, stressed that at this point in the trade war, the consumer may no longer have the capacity to "rescue" the Chinese economy.

U.S. shares finished lower on Friday after U.S. President Donald Trump said that Washington was continuing trade talks with Beijing, but that the U.S. was not going to make a deal for now.

Fears rise over US-China trade war fallout: Goldman Sachs