Robert Shiller warns that an 'economic crisis' is brewing

Nobel Prize-winning economist Robert Shiller warned that businesses could take a ‘wait and see’ approach to increased trade tensions between the U.S. and China.  A ramp up in U.S.-China trade tensions — which many are predicting in the wake of a new round of tariff threats from both sides — would immediately result in an economic crisis, according to Nobel Prize-winning economist Robert Shiller. Shiller described recent statements from US President Donald Trump as those of "a showman" who "obviously relishes" celebrity, noting that the recent escalation in trade rhetoric could reflect the proximity of US midterm elections in November this year. The Yale economist criticized U.S. President Donald Trump during a Saturday interview in Beijing, calling the U.S. commander-in-chief “a showman” who “obviously relishes” celebrity, but acts in a way that’s “totally unbecoming for a president.” But he saved his strongest critique for the apparently increasing likelihood of a trade war between the U.S. and China. U.S. companies, he warned, are not prepared to have China cut out of their supply chains or business models. Speaking at the China Development Forum in Beijing over the weekend, Shiller said a trade war between the world's largest economies risked stalling business investment, leading to the potential for an immediate economic downturn. Beijing on Friday said it may target 128 U.S. products with an import value of $3 billion in response to President Donald Trump’s executive order earlier this month that imposed broad duties on foreign aluminum and steel imports. The U.S. president had also announced tariff plans for up to $60 billion in Chinese imports, although China didn’t officially connect its Friday threats of retaliation to that White House action. The U.S. goods threatened by Beijing include wine, fresh fruit, dried fruit and nuts, steel pipes, modified ethanol, and ginseng, the ministry said. Those products could see a 15 percent duty, while a 25 percent tariff could be imposed on U.S. pork and recycled aluminum goods, according to an official statement. Shiller said he did not believe there would be a significant inflationary effect to the U.S. from steel and aluminum tariffs, but he warned that heated trade rhetoric from both sides could send the American economy reeling into a recession. The global economy has been firing on all cylinders in recent months. A trade war could end that strong momentum, but the last year of growth means there’s “a little capacity to absorb” any trade-related jitters, Shiller said.

By that token, he said, Trump’s decision to go on the trade offensive could be deemed “good timing.”