New US tariffs will test China’s ability to prop up its economy: J.P. Morgan

BEIJING, Aug 17, 2019, CNBC. New U.S. tariffs on Chinese goods could deal another blow to the Asian economic giant — and it’s not clear how much more Beijing can do to prop up its economy, an economist from J.P. Morgan said on Friday, reported the CNBC.

Since the ongoing tariff fight between Washington and Beijing started about a year ago, Chinese authorities have used both monetary and fiscal policies to limit the economic damage brought on by elevated U.S. tariffs. Those measures have worked to some extent, according to Bruce Kasman, chief economist and head of global economic research at the investment bank.

“I think it’s encouraging to see they’ve been moving on multiple fronts, it’s encouraging to see that it’s having some effect on the economy,” he told CNBC’s “Squawk Box.”

“But boy, we just haven’t seen how far the latest damage is going to be,” he added.

U.S. President Donald Trump earlier this month announced that from Sept. 1, an additional 10% tariff will be applied on $300 billion of Chinese goods. But the United States Trade Representative Office later removed some items from its list of targeted goods, and delayed the implementation of new tariffs on some products until Dec. 15.

Nevertheless, many economists have said additional tariffs on Chinese goods imported by the U.S. will hurt China’s economy. Growth has already slowed down in China, with Beijing saying gross domestic product expanded by 6.2% in the second quarter of this year — the weakest rate in at least 27 years.

Global recession risk

Growing U.S.-China tensions, and slowing Chinese and European economies are among the largest risks to global growth in the near term, several economists have said. Those stresses in the world economy could spill over to the U.S., according to Kasman.

Worries about risks outside the U.S. prompted the Federal Reserve to cut interest rates in July. Investors have also become increasingly concerned about a potential looming recession.

Kasman said there’s a 40% chance of a global recession in the next six to nine months.

“I think we have a heightened risk of recession. I think the reason is that we’re seeing the intensification of the big drag in the global economy this year: The falling business confidence related to geopolitical concerns, particularly trade conflicts,” he said.