As the United States and China prepare for a trade war, Mark Carney, governor of the bank of England, has warned President Donald Trump of the dire effects of escalation of trade disputes to the U.S economy. Speaking hours before the two trade giants prepare the launch of tariffs on each other’s imports, he cautioned that the US would take the biggest blow of up to 5%. Other nations would slow down to half that amount. This criticism is one of the boldest of the club of the wealthy nations against Donald Trump so far.
Carney pointed out that any additional measures would continually damage America with current import tariffs already slowing the global economy. Speaking in Newcastle, Carney referred to forecasts by Thread needle Street showing a 2.5% drop in GDP by the American economy. This would come as a result of the drop in trade volumes in three years, should US import tariffs increase by 10% to all its trade partners. As a result of the trade wars, an escalation to a full-scale economic conflict would see lower investment and higher borrowing costs as banks raise their rates of interest. This would mean that the hit on growth would double. Carney also added that trade uncertainty could cause increased risk aversion, bring to life the risks of long term interest rates snapping back, and global tightening of financial conditions.
The United States and China, barring any recent developments, will make good of their threats to impose $34 billion tariffs on imports on Friday. Chinese goods like nuclear reactors, boats and aircrafts will be affected by the US tariffs. These tariffs follow the White House imposition of taxes on aluminum and steel imports from the EU and countries like Canada and Mexico.
Tariffs on American goods like whisky, motorcycles, and Levi’s jeans have in turn been imposed by Brussels. According to Trump, the US could impose tariffs on European cars that could damage the economy by a greater extent than all the current measures. Factory output surveys in America and the EU earlier in the week show that as a consequence of the tariffs on imports, firms faced higher prices and the longest delays on record in delivery are being experienced by manufacturers in the US. Carneys said that the US would for more than fifty years have the highest tariff regime on imports. The impact of raised taxes, coupled with uncertainty of the president’s reaction will impact business investment adversely.