Illustration: Luo Xuan/GT

The US-China trade tensions escalated recently. US President Donald Trump announced via Twitter that the US would increase tariffs on $250 billion of Chinese imports from 25 percent to 30 percent starting October 1, and that tariffs on $300 billion of Chinese imports would increase from 10 to 15 percent, effective September 1. He even tweeted that, "American companies are hereby ordered to immediately start looking for an alternative to China." The move caused stocks, government bond yields and commodities to fall with growing anxiety about a recession, which is against the central selling point of Trump's re-election campaign.

Trump has repeatedly touted that a strong economy is the key success of his presidency. He regards a strong stock market, along with good jobs, as one of key products of his "Make America Great Again" agenda. To win votes for his re-election bid, it is widely believed that he is willing to do whatever "Trump put" is necessary to keep the market strong through November 2020.

Similar to the Greenspan put, the "Trump put" refers to the stimulating actions or policies of the Trump administration as stock markets fall. The latest example of the "Trump put" came after the US leader saw a tumbled stock market triggered by his announcement on August 1 to impose new tariffs on an additional $300 billion of Chinese goods. On August 13, Trump decided to delay increased tariffs. The move pushed the S&P 500 up by 1.5 percent. 

Trade frictions between China and the US have been growing since last year, yet this fresh round of escalations has further rattled investors, confounded central bankers and sparked new worries about a potential global slowdown or recession. 

All major indexes of the US stock market including the Dow Jones Industrial Average, the S&P 500 and the NASDAQ Composite have been in decline for four consecutive weeks.

Bond market sentiment sought out safe-assets bets such as government or high-grade corporate bonds and gold, which have all been performing well this summer. The overdue bond rally, as a market barometer for the risk of future recessions, is sounding its loudest warning and is particularly unnerving to investors.

Last weekend, yields on Treasury debts with maturities ranging from two years to 30 years all tumbled to new lows. Falling yields are taken as an ominous sign for the economy.

Yields of benchmark 10-year US and UK government bonds even dipped below shorter-maturity debts for the first time since the financial crisis of 2008, in a phenomenon known as an inverted yield curve. As the yield curve was inverted ahead of the past seven economic recessions, this is generally seen as a harbinger of economic recession or downturn. 

Furthermore, it is a close reality that this uncertain environment might drag US government-bond yields into negative or sub-zero territory.

In Europe and Japan, bonds with sub-zero yields have helped alleviate economic pain but have hurt investors, threatening the financial system by curtailing banks' ability to generate profit and failing to lead to a true revival in those economies.

As the trade dispute has opened up new fronts, including technology supply chains and currencies. Perhaps these will be followed by the international banking system, shipping companies or foreign joint ventures.

Debates about what an inverted yield curve means are being stoked among investors and economists. Trump doesn't consider a recession a certainty but instead repeats his empty rhetoric about a "phenomenal" economy. Many economists argue that the yield curve is no longer a reliable predictor and fears of an immediate recession are overblown, as the world economy is still growing - jobs are plentiful, wages are picking up, credit is still easy, and so on.

Nevertheless, the flattening or inverting curve is increasing the chances of a "Trump Anxiety," if not a "Trump Recession."

Most companies make investment plans over a five- to 10-year horizon. The looming prospect of a recession may lead them to crimp or delay investment. The knock-on effect from this capital-spending stumble could be far-reaching and more painful than expected, and could include scaling back hiring in the short run while sapping productivity in the long run. Instead, more investors are snapping up safer assets like gold, government bonds or dividend-paying stocks in case the argument for recession becomes clearer.

There is growing sensitivity and anxiety amid investors and firms that are struggling to get to grips with uncertainty, which poses the greatest threat to the US economy and the global economy as a whole. 

There is no doubt that a full-blown recession would threaten Trump's re-election bid and provide substantial fodder for Democratic presidential candidates, who have already been attacking Trump's handling of the economy. 

Trump and his trade team previously claimed that there have been no negative effects from his China brawl, and that China has more to lose from a tariff escalation than the US. Trump has recently changed his tone by saying that any economic pain is worth the price of taking on China.

Trump apparently underestimated the economic harm that would result from his multiple trade disputes. Supply chains built over decades can't be uprooted overnight, and US exporters can't find an easy alternative to China, which has a huge, relatively skilled workforce, infrastructure and network of suppliers, on short notice. 

Manufacturing and corporate exports have slumped in the US, and private investment has been shaved in the second quarter, as global demand declines due to higher tariffs.

If Trump wants to give the economy a policy boost, he should clear the pall over business investment that only arrived as a major result of his trade policies. From an electoral perspective and with the agenda of preventing a recession, a sensible "Trump put" will be for him to end his tariff campaign and ink a trade deal with China as soon as possible. 

Yongfu Huang is a senior fellow at the ICC of the National Development and Reform Commission of China. Zhiqiang Fan is assistant research fellow at Fudan University and a member of the Shanghai Translators Association. bizopinion@globaltimes.com.cn