Nobel Prize-winning economist Robert Shiller said that heightened trade tensions between China and the US could spark economic crisis by adversely affecting key links in the supply chains of American businesses.
Speaking to CNBC at the sidelines of the China Development Forum over the weekend, Shiller said that an economic crisis could be the immediate result of worsening trade tensions.
According to Shiller the risk of any disruption to Sino-US trade will make US companies far more cautious in their outlook, given the critical role that China plays in supply chains and business models.
“The immediate thing will be an economic crisis because these enterprises are built on long-term planning…they’ve developed a skilled workforce and way of doing these things,” said Shiller.
“We have to discover these things in whatever country after the imports are cut off.
“It’s just chaos: it will slow development in the future if people think that this kind of thing is likely.”
Shiller said that it is the impact on expectations of heightened trade tensions that will have the most adverse effect upon the economy, as opposed to the direct results of tariffs themselves.
“When you ask about the size of the impact on the economy, I think a lot of it is more psychological than direct, unless they really slam on tariffs.”
According to Shiller the trepidation that this creates amongst businesses will be the chief source of economic upset.
“It’s exactly those ‘wait and see’ attitudes that cause a recession,” he said.
President Trump recently unveiled plans to place tariffs on up to $60 billion in Chinese imports.
Beijing subsequently announced that it could place levies on 128 US products with a combined import value of $3 billion, including wine, fresh fruit, dried fruit and nuts, modified ethanol, ginseng and steel pipes.