Worries that the United States and China were digging in for a longer, costlier trade war weighed on financial markets on Monday as Beijing accused Washington of harboring “extravagant expectations” for a deal to end their dispute.
Investors added up the costs of higher tariffs on Chinese and U.S. goods as well as the effects of severe U.S. restrictions on China’s Huawei Technologies for the U.S. technology sector, sharply driving down shares of suppliers Qualcomm, Micron Technology and Broadcom Inc.
Apple Inc shares fell 3.3 percent, hurt by a warning from HSBC that higher tariffs on Chinese goods would force the tech company to raise prices, with “dire consequences” on demand for its products.
Morgan Stanley analysts warned that a collapse of the trade talks and a lasting breakdown with higher tariffs on all U.S.-China trade would push the global economy toward recession.
In a note to clients, they said such a scenario would prompt the U.S. Federal Reserve to slash interest rates back to zero by the spring of 2020, but lags in policy transmission “would mean that we might not be able to avert the tightening of financial conditions and a full-blown recession.”
