(Kitco News) - An escalating trade war could spiral out of control and bring the world to the brink of an economic collapse on the scale of the Great Depression of the 1930s, said John Doody, founder of Gold Stock Analyst.
"We're going to get a replay, to some extent, of the 1930s episode where the U.S. put the Smoot-Hawley Tariff Act, imposed taxes on 20,000 imports, and basically made what was going to be a recession into a depression," Doody told Kitco News.
Doody noted that while this worst case scenario is a potential, it is unlikely we will see this play out anytime soon as a more active Federal Reserve today would cut rates to even the economic scales.
The analyst said that the Fed will likely ease up on hiking rates this year as jobs losses occur as a result of a trade war.
"Ultimately the Fed will react to the jobs loss, and we're seeing jobs losses already. These things have a ripple effect. It ripples through the economy the same way that increases in government spending ripples through the economy," he said.
Doody added that we are only in the beginning phases of a trade war, and its ramifications will take effect further down the line. One immediate consequence is a weakening dollar, which would be a boon for gold.
"One of the things that determines the gold price is U.S. interest rates and the attractiveness of the U.S. dollar. The dollar has been very strong this year, based on U.S. industry growth, but the dollar will lose its attraction if the tariffs really dig in, which is what I expect," Doody said.
