Economists and analysts are warning about the ramifications of a long-lasting trade war between the U.S. and China, as Beijing has pledged to respond if the U.S. insists on imposing additional tariffs, while President Trump said new import taxes on a long list of goods could go “well beyond” 25%.

Stocks were slumping and bonds were rising, with the S&P 500 down as much as 0.7% to the lowest since June 28, and yields on 10-year Treasuries falling about 2 basis points to 1.88%.

Here’s a sample of the latest commentary:

Morgan Stanley, Michael Zezas

There’s still time for negotiations, but Morgan Stanley is treating a 10% tariff on $300 billion of Chinese goods as likely to go into place, for two reasons, Zezas wrote in a note. First, the Trump administration “historically follows through on tariff plans,” and second, “fundamental disagreements remain, making the benefits of escalation appear greater than cooperation to both sides.”

If tariffs escalate to 25% on $300 billion, and remain for four to six months, Morgan Stanley economists would expect a recession within three quarters, as the increase would have a “non-linear impact on financial conditions and growth.” That’s because about 68% of the next round will be consumer goods and autos and parts, with “more potential for immediate impact to the economy.”

At the same time, Zezas added that “weaker risk market performance could change this dynamic and our view.”

Citi, Cesar Rojas

The current U.S. environment gives the Trump administration room to take a “more aggressive stance on trade,” while “prospects for even lower rates (as two of the Fed cuts drivers worsen) would reinforce this approach,” Rojas said. He expects the threatened 10% tariffs will come into effect.

Potential escalation “raises trade policy uncertainty and will continue to harm sentiment and business investment, as supply chains shift away from China,” and may weigh on capital flows as well, he warned.

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