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Analysts at Bank of America Merrill Lynch (BAML), in the latest client note, evaluated the impact of a trade war on the US economic growth.

Key Quotes:

“Analyzed the impact of a trade war on the U.S. economy based on the Fed’s large-scale equilibrium macroeconomic model and said it showed “a notable drag on growth.”

This suggests that the boost to growth expected from fiscal stimulus – e.g., tax cuts and greater federal government spending – will essentially be offset by the negative trade shock.

Our calculations suggest that a major trade war would lead to a significant reduction in growth. A decline in confidence and supply chain disruptions could amplify the trade shock, leading to an outright recession.”