US-China Trade War Escalates, Recession Risk Rises

President Donald Trump views tariffs as a means to finance tax cuts, reduce the US trade deficit, and attract manufacturing, aligning with his strategy to break off trade relations with surplus economies like China. The article states that a collapse in imports due to tariffs will lead to dramatic price increases for manufactured goods and disrupt supply chains in key sectors such as automotive, chemicals, and electronics.

Inflation is projected to reach 4% by year-end, and unemployment will climb to 5-6%, pushing the US economy into recession. A more severe scenario involves a loss of confidence in US governance, triggering capital flight and a balance of payments crisis.

Since April 2, the US dollar has fallen from 0.93 to 0.88 against the euro, Treasury yields jumped 50 basis points, and the S&P 500 lost 7.6% of its value since the beginning of the year, indicating capital outflow. China plans to partially offset the tariff shock with domestic stimulus measures, as domestic sales account for 81% of industrial companies' turnover, with direct exports to the US representing only 2.7%.

The Chinese government will increase subsidies for affected SMEs. Globally, business partners must review trade strategies, potentially aligning with US policy or strengthening ties with multilateralist economies like Japan, Southeast Asia, and Europe.

China will impose export quotas or minimum prices to address dumping concerns. Marcos Carias and Junyu Tan are the economists who authored this analysis.