Summary

• The US administration’s decision to add a 10% tariff on the remaining USD300bn of Chinese import goods as from September 1 marks a fresh escalation in the bilateral trade war

• The developments since last Friday, which include retaliatory steps by China – in particular on the currency front – and the US’s decision to brand China as a ‘currency manipulator’ only underscore that it will be very hard for both sides to row back now

• Whilst we can be sure that global central banks will step up to the plate to alleviate the impact of the trade war – most likely implying even lower interest rates across the board - the bottom line impact is likely to be negative for both growth and inflation

• Given the potentially significant ramifications the trade war may have for financial markets, confidence and, hence, the global economy we have further reduced our growth projections

• Indeed, going by the unofficial IMF definition, our projections now imply a ‘shallow’ global recession (growth below 3%) in 2020/2021