The Nobel-winning economist Robert Shiller has warned that growing trade tensions between the United States and China could spark the next US economic crisis.
Speaking at the China Development Forum in Beijing over the weekend, Shiller said a trade war between the world’s largest economies risked stalling business investment, leading to the potential for an immediate economic downturn.
“It’s just chaos — it will slow down development in the future if people think that this kind of thing is likely,” Shiller told CNBC in response to proposed tariffs announced by the US and China late last week.
“The immediate thing will be an economic crisis because these enterprises are built on long-term planning — they’ve developed a skilled workforce and ways of doing things. We have to rediscover these things in whatever country after the imports are cut off.”
Pointing to what he described as the “most famous tariff war of all,” the Great Depression of the early 1930s, Shiller said the greatest economic damage could be caused by firms adjusting their investment behavior rather than by the new tariffs alone.
“When you ask about the size of the impact on the economy, I think a lot of it is more psychological than direct, unless they really slam on tariffs,” he said, noting that tariffs introduced during the Great Depression may have helped “destroy confidence” and willingness to plan for the future.
“It’s exactly those ‘wait and see’ attitudes that cause a recession,” he said.
Shiller described recent statements from US President Donald Trump as those of “a showman” who “obviously relishes” celebrity, noting that the recent escalation in trade rhetoric could reflect the proximity of US midterm elections in November this year.
“He’s been president for a year — it’s about time he does something that gets people’s excitement going,” Shiller said.
“He has a philosophy of life that that’s what you have to do.
“If you want to stay famous, celebrity — which he obviously relishes — you’ve got to be constantly creating news.”
This article originally appeared on Business Insider.com.