Great trade war with China has brought the US to the brink of recession, warns leading economist

Reuters / Brendan McDermid

• The trade war between the United States and China is pushing America into a recession, according to economist UBS Seth Carpenter.
• A new tariff series came into effect on 1 September and trade shows no signs of slowing down.
• Carpenter says it increases uncertainty for businesses and could have an impact on consumption and unemployment.
• If UBS believes the US will avoid the recession, Carpenter says there are still risks.
• Learn more about Markets Insider.

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President Trump's trade war with China is pushing the US into a recession, according to a report released Tuesday by UBS's leading US economist.

The comment comes after the entry into force of a new series of tariffs on 1 September. They included taxes of 15% from $ 113 billion worth of goods imported from China to the United States. Trump had previously considered levying a 10% duty, but increased it in retaliation for new trade measures instituted by China.

"The measure clearly shows that 25% is not a ceiling on tariffs and therefore should significantly increase uncertainty about the prospects of corporate trade war," wrote Seth Carpenter, US chief economist at UBS.

As fares have gone up, the economic challenges have increased, Carpenter wrote. The data show that imports of goods have fallen by 40% because of tariffs and that domestic spending has always been low since the entry into force of customs duties last year, has -he declares.

In addition, as new rates have been introduced, they have an impact on consumer goods. This will continue to disrupt production lines, which could result in a drop in employment, Carpenter said.

"As a result, business investment and household spending suffer," he wrote.

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Carpenter is also very focused on consumption, which he says accounts for nearly 70% of the US economy and therefore largely affects gross domestic product.

In his view, tariffs lead to lower consumption in two ways: 1) higher prices lead to lower expenses, and 2) businesses also spend less, which can cause them to stop hiring and increase unemployment. Carpenter expects the economy to stagnate in the first half of 2020 and historically low unemployment rates to reach 4.3% by the end of the year.

But Carpenter still sees the United States narrowly avoiding a recession – although he identifies some negative risks.

"An additional shock on the economy could result in a contraction," wrote Carpenter.

He also said that sectors such as energy and retail could still slide, while growing political risks could also create formidable headwinds.