By Jason Douglas
LONDON–Bank of England Gov. Mark Carney warned Thursday about the risks to the global economy from a full-blown trade war, saying higher tariffs between the U.S. and its major trading partners could weigh on growth for years to come.
His remarks come amid a widening trade dispute that has rattled global markets. The U.S. is scheduled to impose tariffs on $34 billion of Chinese imports starting 12:01 a.m. Eastern time Friday. China has pledged to respond with corresponding tariffs on U.S. imports immediately after the American levies take effect.
In a speech in northern England, Mr. Carney said that a trade war would have direct costs to the global economy through reduced trade as well as indirect costs ranging from weaker business and consumer confidence to higher inflation and sagging productivity growth.
He said there were already “tentative signs that this more hostile and uncertain trading environment may be dampening activity,” citing survey measures showing faltering global export orders and manufacturing output.
He warned a trade war could prove the catalyst for a wider economic slowdown.
“There is a growing possibility that trade uncertainty could crystallize the longstanding risks of a snapback in long-term interest rates, increased risk aversion and a general tightening in global financial conditions,” Mr. Carney said, according to a text of a speech prepared for delivery at the Northern Powerhouse Business Summit in Newcastle, England.
The threat of tit-for-tat tariffs between Washington and Beijing is the latest skirmish in a widening trade dispute that has set the U.S. against many of its traditional allies.
President Donald Trump imposed tariffs on steel and aluminum imports from the European Union in May, as well as Canada and Mexico, citing national security concerns.
The EU retaliated by placing tariffs on EUR2.8 billion ($3.3 billion) of imports from the U.S., including bourbon whiskey and Harley-Davidson motorcycles.
Mr. Trump, who accuses trading partners of unfair practices, repeated an earlier threat to place tariffs on European cars. He has also threatened to levy additional duties on up to $400 billion in Chinese products.
Mr. Carney said a Bank of England analysis suggests that raising average tariffs between the U.S. and its major trading partners by 10 percentage points could cost the U.S. 2.5% of gross domestic product over three years. Through reduced trade alone, the effect on the global economy would be around 1% of gross domestic product, he said.
Mr. Carney warned that the impact of a global trade war will be greater the longer it lasts, due to the bigger effect on business confidence, the risk that borrowing costs rise across the board and productivity growth slows.
Mr. Carney said that despite signs of faltering global growth, the U.K. economy appears poised to grow more or less in line with Bank of England forecasts published in May, a sign the central bank remains on course to nudge up interest rates two to three times over the next few years. Economists expect the next increase could come as soon as August.
Write to Jason Douglas at firstname.lastname@example.org
(END) Dow Jones Newswires
July 05, 2018 06:41 ET (10:41 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.