Reuters; Reuters Carney v Trump. Things could get tasty.
- Bank of England Governor Mark Carney makes gibe about President Donald Trump's tweeting habits during a speech in northeast England.
- "At the moment, protectionism is largely just talk and tweets," he said, while discussing the developing trade war.
- Carney said Bank of England forecasts suggest as much as 1% could be knocked off global growth by the trade war.
Bank of England Governor Mark Carney made clear his thoughts on President Donald Trump's rising trade war, seemingly mocking the president's fondness for making policy announcements via Twitter.
In a speech in Newcastle, England on Thursday, 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."
He said, "At the moment, protectionism is largely just talk and tweets."
Over the past couple of months, Trump has sparked a global-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 conflict will 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:
Bank of England
Bank of England
Ultimately, if things were to deteriorate further, Carney said that 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."
Bank of England
Not only would a significant trade war lower global growth, it would also impact 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 and 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. Although the shock from higher tariffs would drag on activity, their initial impact would be inflationary, particular for the country at the centre of the trade dispute," Carney said.