Will Trump's trade war result in a recession? | The Tylt

Will Trump's trade war result in a recession?

Alert: economy-speak is about to be broken down. There are a number of indicators economists look to in order to predict recessions. One of those indicators is known as the "inverted yield curve." Investors get spooked when short-term interest rates are higher than long-term interest rates for bonds, which are essentially loans. This particular indicator has occurred before every recession since 1955, and many worry Trump's trade war policies are to blame for what they see as a forthcoming economic crisis. Others say there's no need to panic...yet. Do you think the "Trump Recession" is real? 

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Will Trump's trade war result in a recession?
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The Washington Post's Jonnelle Marte summarizes the impact from the inverted yield curve, the latest stock market warning sign:

What it means is that people are so worried about the near-term future that they are piling into safer long-term investments.

Bonds are essentially loans made by investors to borrowers (like the U.S. government). Per Investopedia:

Bonds are used by companies, municipalities, states, and sovereign governments to finance projects and operations. 

According to Marte, in a healthy economy, bondholders (the lenders) receive a greater "yield" or return on long-term bonds, where the lending period lasts for around a decade or so. Short-term bonds can last for only a few years and result in a smaller return. Marte explains how this balance changed for the worse in August:

For U.S. government securities — known as Treasury bonds — that relationship has now turned upside down. On Wednesday morning, the yield on the 10-year Treasury temporarily fell below the yield on the two-year Treasury for the first time since 2007. (It later recovered slightly.)

All that to say, an inverted yield curve shows investors are worried. When they are worried to this degree, a recession is often the result:

The more pronounced inversion is a sign that people are more concerned about the fallout of the trade war between the U.S. and China and worried by signs that economic growth may be slowing around the globe.
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Others stand by the idea that Trump's plans will continue to spur the economy. As Politico's Ben White and Victoria Guida wrote in April: 

For now, Trump is getting win after win on the economic front. The S&P 500 and Nasdaq stock indices hit new records this week after tanking hard last December on fears of an imminent global slowdown. Job growth continues to hit around 200,000 per month.
#TrumpRecessionReal

But strong economic indicators do not negate the signs economists are now worried about. The New York Times' Matt Phillips further emphasizes how Trump's trade war with China is making an impact: 

...there is increasing evidence that the fight between the two largest economies over trade, technology and economic dominance has already taken a significant toll on the world economy.
In China, a variety of macroeconomic indicators published overnight showed that its economy continues to lose steam as the trade war drags on. Chinese industrial production slowed more than expected, falling to 4.8 percent in July, the lowest level since 2002. Investment growth and retail sales also slowed.

Phillips also reports declining corporate earnings.

#EconomyStillStrong

But even after news of stock market volatility, Trump maintains the strength of the economy.

He adds to the below tweet: 

..Spread is way too much as other countries say THANK YOU to clueless Jay Powell and the Federal Reserve. Germany, and many others, are playing the game! CRAZY INVERTED YIELD CURVE! We should easily be reaping big Rewards & Gains, but the Fed is holding us back. We will Win!
FINAL RESULTS
Politics
Will Trump's trade war result in a recession?
A festive crown for the winner
#TrumpRecessionReal
#EconomyStillStrong