- The Bank of England’s governor, Mark Carney, gibed US President Donald Trump over his tweeting habits.
- “At the moment, protectionism is largely just talk and tweets,” Carney said during a speech in northeast England while discussing the developing trade war.
- Carney said the Bank of England forecasts suggested as much as 1% could be knocked off global growth by the trade war.
The Bank of England’s governor, Mark Carney, made clear his thoughts on President Donald Trump’s rising trade war on Thursday, seemingly mocking the president’s fondness for making policy announcements via Twitter.
In a speech in Newcastle, England, Carney discussed the potential economic impact of a trade war and in doing so made the gibe at Trump.
Discussing open trade and the strength of the global economy, Carney noted that “protectionist rhetoric has also risen, and it is now turning into action, with the US increasing tariffs and the affected countries retaliating.”
“At the moment,” he added, “protectionism is largely just talk and tweets.”
Over the past couple of months, Trump has sparked a trade conflict by placing or threatening punitive tariffs on hundreds of billions of dollars’ worth of goods from China, Mexico, Canada, and the European Union. He has been vociferous on Twitter in discussing those tariffs, frequently lamenting what he sees as the anti-US slant of global trade policy.
Economists are almost unanimous that a full-blown trade war would be a major negative for the global economy, with the US widely expected to be the biggest casualty. That’s a belief echoed by Carney, who asked his audience, “What if rhetoric becomes reality?”
“There are some tentative signs that this more hostile and uncertain trading environment may be damping activity,” Carney said, pointing to recent global surveys.
“For example, survey measures of global export orders and manufacturing output have fallen back from highs at the start of this year, and growth in US and euro-area capital goods orders fell to zero in Q1,” he said, citing the charts below:
Carney said if things were to deteriorate further, as much as 1% could be knocked off global economic output, with 2.5% taken off US output.
“Bank of England simulations suggest that the impact of narrow, bilateral tariff increases through direct trade channels would tend to be small – reflecting the small share of overall exports affected – and would be largely confined to the countries directly involved,” Carney said.
“However, a larger, increase in tariffs of 10 percentage points between the US and all of its trading partners could take 2.5% off US output and 1% off global output through trade channels alone.”
Not only would a significant trade war lower global growth, but it would also affect the nascent normalization of monetary policy developing around the world. During the financial crisis, central banks cut interest rates aggressively and implemented huge programs of quantitative easing to prop up major economies. Ten years later, those extreme measures are being wound down, particularly in the US. Trump’s trade war could halt that progress.
“The scenario would put monetary policymakers in a difficult position,” Carney said. “Although the shock from higher tariffs would drag on activity, their initial impact would be inflationary, particular for the country at the center of the trade dispute.”
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