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Donald Trump's tariffs and threats raise chances of a US recession

Trade is new and dangerous terrain for the Federal Reserve

| North America
President Donald Trump has managed to worsen the chances of a U.S. recession with his hostile policies toward China   © Reuters

One of the many advantages of the global trading system supported by the U.S. until now was that rich-country central bankers did not have to think about trade. There might be a liberalization of trade, broadcast far in advance, covering a small share of GDP, but no large or abrupt changes -- and certainly nothing of consequence negative for the economy.

We have no history of trade wars to draw on since the 1930s, and we took the system for granted. As a result, our forecasting models are biased toward underestimating the harms they do.

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