The U.S.-China trade war could still escalate despite recent discussions on removing imposed tariffs, and the Trump administration may not be able to secure a lasting deal, former Reserve Bank of India Governor Raghuram Rajan said.
“In the last few days there were some discussions of moving down the tariffs in the fights between the U.S. and China, but it’s not the end,” Rajan, who now teaches at Chicago Booth School of Business, said during a speech at a forum in Beijing Friday. “The chances of a comprehensive deal are really quite small.”
A deal good enough to restore confidence in cross-border investment is not likely “in the next year or so, and could even require a new administration in the U.S.,” he added.
Rajan said serious policy mistakes such as the trade conflicts, as well as geopolitical risk could be the trigger for a global recession, other than traditional causes in the past such as monetary tightening or a high leverage ratio in the financial sector.
“If there is a recession -- even half of the size of the global financial crisis in 2008 -- 40% of corporate debt will be in trouble,” he said.