The Forever Trade War and the Week’s Other Economic Takeaways

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The trade war between the U.S. and China doesn’t look like it’s heading for a truce anytime soon, casting a shadow over financial markets and the global economic outlook.

Here’s our weekly review of the world economy and the lessons learned.

The Forever Trade War?

The clash between the U.S. and China escalated, much to the dismay of financial markets. As China struck back at last week’s decision by the White House to raise tariffs on more of its goods, the Trump administration began paving the way to targeting almost all of its imports and moved to curb Huawei Technologies Co.’s access to the U.S. market and American suppliers. Trump also gave the EU and Japan 180 days to agree to a deal that would “limit or restrict” shipments into the U.S. of automobiles.

As Shawn Donnan wrote, Trump may now be embracing tariffs as an end-goal rather than a tool to create leverage and draw Beijing into making concessions. He increasingly claims his tariffs have helped power U.S. economic growth and that it’s China footing the bill for them.

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Rebound Delayed?

The trade war risks upending the world economy’s much-anticipated rebound with a slew of data this week exposing its recent fragility. April readings for Chinese industrial output, retail sales and investment all slowed by more than economists forecast. In the U.S., retail sales unexpectedly declined last month while factory production fell for the third time in four months. GermanyTurkeyRussia and Brazil also looked shaky.

The fear is that with the trade war turning nasty, companies will shelve investment, consumers will cut spending and stocks will slide. Morgan Stanley economists reckon an extended impasse between Beijing and Washington could trigger a worldwide recession, while others joined them in mapping out worst-case scenarios for China. A new analysis by Bloomberg Economics concluded China stands to lose more than the U.S.

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