A Bank of England rate-setter warned that the imposition of tariffs would impact economic growth in the UK, although it could also contribute to lower inflationary pressures.
Clare Lombardelli, a deputy Governor at the Bank, warned that trade barriers would impact productivity growth, while uncertainty about Donald Trump’s plans would weigh on activity in the short-term.
“I don’t want to speculate on the specifics but we know barriers to trade are not a good thing, whether they are tariffs or regulatory or others,” she said in an interview with the Financial Times.
“Whether you are an economic historian, an economic theorist or a data-driven economist, the impact is clear in terms of its direction. In terms of its size, that depends on the circumstances.”
The comments come just days after Donald Trump threatened to impose a 25 per cent tariff on all goods coming from Mexico and Canada, a higher duty than investors were anticipating.
Trump also said he would impose an additional 10 per cent tariff on Chinese goods until it clamps down on fentanyl smuggling.
During the campaign Trump threatened to impose a 60 per cent tariff on all Chinese goods, which Lombardelli suggested could actually have a disinflationary impact, as it would encourage Chinese producers to cut prices in order to maintain market share.
Swati Dhingra, another member of the MPC, has also suggested that Trump’s tariffs on China would likely put downward pressure on inflation.
“If there is the kind of big 60 per cent type of tariff increase that’s been proposed, that will have repercussions on to world prices, and mostly on the downward direction,” she said at a conference on Monday.
“It (tariffs) takes a massive amount of demand out of the world market. The way exporters, say in China, would respond to that would be to respond with prices, world prices, as they don’t want to lose market share,” she said.