Trump's Trade Threat Sparks Fears of Global Recession

Donald Trump has made a bizarre threat to stop all trade with countries that have a surplus with the US unless the Federal Reserve Board cuts interest rates. This move would plunge the country into crisis, according to experts.

The US currently has a fiscal deficit of about 6% of GDP and an inflation rate of 3.7%. The country's $40 trillion government debt is also a major concern. In response to Trump's threat, Federal Reserve Board chair Kevin Warsh would likely not pay any heed, as the central bank prioritizes controlling inflation and maximizing jobs.

Stopping trade with countries that have a surplus with the US would severely impact the country's economy. The US consumes more than its poor savings rate can finance, relying heavily on imports to complement its savings and help finance investment and consumption. If Trump were to cut off these imports, there would be severe shortages of products and massive increases in prices.

The impact could be exacerbated if other countries retaliate by blocking US exports. Regardless, a global recession is likely to follow. While the threat may generate more US home-shoring of production in the long term, it would not moderate the near-term shock.