Bank of England chief attacks ‘dangerous' Trump tariff war

Telegraph

2 days ago

Andrew Bailey has warned against 'dangerous' US tariffs, urging governments around the world to address global trade imbalances without hammering growth.
On Tuesday, the Bank of England Governor warned Donald Trump not to use tariffs on imports as a way to tackle America's trade deficit, and instead called on the US, China and others to fix their own economies first before targetting trade partners overseas.
'There is ... a common interest globally in tackling excess imbalances before dangerous levels of trade restrictions come into play, and before we face the prospect of difficult adjustment with macroeconomic volatility and financial instability,' Mr Bailey told an audience of financiers in his speech at the Mansion House, in the City of London.
'Increasing tariffs creates the risk of fragmenting the world economy, and thereby reducing activity.'
His warning comes after the 90-day pause on the so-called 'liberation day' tariffs came to an end, leaving countries without their own trade deal facing a sharp rise in taxes on goods sold into America.
Britain struck a deal with Mr Trump to limit the pain of the levies, but the EU did not – leaving American customers of the bloc's exporters facing a 30pc tax on goods.
Brussels is threatening retaliation. Officials have compiled a list of €72bn (£62bn) worth of American imports to target with their own border taxes, on top of the previous €21.5bn of tariffs in response to Mr Trump's earlier assault on imported steel and cars.
Mr Trump's tariffs are aimed at bringing down America's trade deficit, as the country's imports of goods vastly outweigh its exports, a state of affairs which the President argues has undermined manufacturing jobs and economic growth.
China is a particularly big exporter of goods to the US.
Mr Bailey said there are steps the US and China could take with their domestic economies to reduce the imbalance without resorting to a trade war.
'The US does need to explain how it can regard its internal imbalance as sustainable and its external imbalance as not so, and how it envisages the internal balance responding to an adjustment of the external balance flowing from tariffs taking effect,' he said.
'And China needs to explain how it will tackle its persistently weak domestic consumption.'
At the same time, the Governor proposed his own 'deliberately modest' reforms to the global economy to fix the problem without taxes on trade, focused on beefing up the International Monetary Fund (IMF) and the World Trade Organisation (WTO).
This should include stronger 'assessment of the implications of excess imbalances, including greater focus on spillovers, and greater depth of trade analysis', as well as giving the warnings 'more bite' by including them prominently in the IMF's headline assessments of each country's economy.
Mr Bailey also warned that countries running large deficits also face dangers if they do not address the issues.
'Deficit countries have historically faced far more pressure to correct excess current account balances than surplus countries. This typically takes the form of financial market pressure,' he said.
'It is very hard to judge the limits of sustainability. We have seen market disturbance this year. We have to be highly alert to financial stability risks – something that I can assure you we are following closely.'