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“Global growth now looks likely to slip below trend for the rest of this year,” JPMorgan Chief Economist Bruce Kasman and colleagues wrote in a report.

Also sounding the alert, economists at Goldman Sachs Group Inc. said they now expect the U.S. to impose 10 per cent tariffs on the remaining US$300 billion-worth of imports from China and on all Mexican goods, too. The bank lowered its U.S. second-half growth forecast by about half a percentage point to 2 per cent and said its sees a greater likelihood of interest-rate cuts from the Federal Reserve.

“While it is a close call, the outlook has not yet changed enough for cuts to become our baseline forecast,” Goldman analysts led by Chief Economist Jan Hatzius said in a note.

The rift between the Trump administration and China has escalated as each side blames the other for the breakdown in talks. The trade war is also taking on a global dimension amid simmering tensions between the U.S. and the European Union, while Trump is threatening to impose tariffs on Mexican goods in response to illegal immigration.

Morgan Stanley’s Ahya advised clients that if the conflict continues, growth will suffer as costs increase, customer demand slows, and companies reduce capital spending.

Analysts at Citigroup Inc. recommended investors buy U.S. Treasuries, noting the last time the world economy looked as it does now was at the start of 2016 — which was followed by a meaningful slowdown worldwide.

“That episode may provide a useful blueprint for the coming months,” said Mark Schofield, Citigroup’s director of macro strategy. “The U.S. economy has been resilient up to now, however, persistent themes of softening tailwinds in the form of declining fiscal stimulus and strengthening headwinds in the form of trade tensions and China slowdown, are a threat.”

Bloomberg.com