As trade tensions mount between the U.S. and China, Nobel laureate economist Robert Shiller of Yale University warns that the mere anticipation of an escalation is enough to send the U.S economy into recession, CNBC reports.

"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 the tariffs," he told CNBC. However, that psychological impact can be huge. "It's just chaos. It will slow down development in the future if people think that this kind of thing is likely," he added.

From the close on March 9, 2009, which officially marks the end of the last bear market, the S&P 500 Index (SPX) has risen by 293% through the close on March 26. From its Great Recession trough in the second quarter of 2009, through the fourth quarter of 2017, the U.S. economy, as measured by GDP, has grown by 37.6%, per data from the Federal Reserve Bank of St. Louis. Meanwhile, another CNBC story indicates that concerns about the negative impacts of trade conflicts on the economy and on stocks has become the chief worry for Wall Street. (For more, see also: 6 Stocks At High Risk In A Trade War.)

Lessons From the Great Depression

Shiller told CNBC, "If you go back to the most famous tariff war of all during the Great Depression, it did not plausibly, directly affect GDP in a major degree, but it may have helped destroy confidence and a willingness to plan for the future." Shiller was referring to the Smoot-Hawley Tariff Act, which many economic historians believe was a major catalyst for the Great Depression of the 1930s.

In the wake of President Trump's recent tariffs on aluminum, steel, and a variety of Chinese-made goods, Shiller went on, "If you're starting a new export business, you may say 'wow, let's not do this, let's wait and see,'" in anticipation of further impediments to trade. "It's exactly those 'wait and see' attitudes that cause a recession," Shiller continued.

'Built on Long-Term Planning'

Observing that a large number of U.S. businesses are heavily reliant on imported goods from global supply chains, Shiller noted that any threat of trade disruption, let alone actual disruption, can be catastrophic. "The immediate thing will be an economic crisis because these enterprises are built on long-term planning," he told CNBC. Finding "alternative sourcing" for supplies and reworking business processes that have been built on these supply chains cannot be done overnight, hence his prediction of "chaos" should expectations of trade wars increase, never mind come to fruition.

Even if the trade situation with China stabilizes, President Trump also has threatened to withdraw the U.S. from the NAFTA trade pact with Canada and Mexico. In a recent CNBC poll, 80% of respondents, among them economists, portfolio managers and market strategists, stated that this would be a negative for the U.S. economy, with 48% indicating that it would be very negative (see the earlier Investopedia story referenced in the second paragraph). Moreover, Trump is unlikely to stop with threats against China and  NAFTA, raising the specter of a perpetual state of trade-related uncertainty during his term of office.

Economy in 2020: "Anxiety Level Starts to Rise'

"2020 is a real inflection point," according to Mark Zandi, chief economist at Moody's Analytics Inc., in comments to Bloomberg. That's the next presidential election year. "The economy is poised for a bumpy ride in 2020," write Carl Riccardona and Yelena Shulyatyeva of Bloomberg Economics. Also per Bloomberg, Joel Prakken, chief U.S. economist at Macroeconomic Advisers, a division of IHS Markit, says of 2020 that "my anxiety level starts to rise." 

Among the problems that these, and other, economists see on the horizon, according to Bloomberg: fading fiscal stimulus from tax cuts and federal spending increases; rising interest rates; world GDP that appears to be peaking now; and growing trade tensions. Also, despite recent sell-offs, the prices of stocks, bonds, and other asset prices remain at historically high levels, and Federal Reserve Chairman Powell has observed that the last two recessions were sparked by the bursting of asset bubbles, Bloomberg adds. (For more, see also: An Economic 'Shock' Could Derail the Bull Market.)