Powell: Business concerns over trade tensions are rising

Federal Reserve Chairman Jay Powell said Thursday that the central bank is “hearing a rising level of concern” from U.S. businesses about the impact of President Trump’s tariffs.

Powell said in a radio interview with Marketplace that corporate leaders and analysts in contact with the Fed have become more alarmed about the potential harm Trump’s trade policy could do to the economy.

The chairman added that while the economy would benefit if Trump’s actions lead to lower tariffs and barriers for U.S. goods, a protracted trade war could create “very challenging” economic conditions.

{mosads}

Powell said that high tariffs “sustained for a long period of time” could “be a negative for our economy,” but that “it’s very hard to sit here today, and say which way that’s going.”

His comments come two days after Trump announced plans to impose tariffs on an additional $200 billion in Chinese goods. Those tariffs would follow levies on $50 billion in Chinese exports that are already finalized or in the pipeline.

Trump has also imposed tariffs of 25 percent on imported steel and 10 percent on imported aluminum, angering China and key U.S. trading partners including the European Union, Canada and Mexico. Those countries and others have imposed retaliatory tariffs on U.S. exports, targeting industries that contribute billions of dollars to the U.S. economy and employ millions of Americans.

Most of Trump’s Republican colleagues have opposed his protectionist trade policies, which are a major departure from the GOP’s historic support for free trade. Democrats have also been highly critical of Trump’s policies, though some members from manufacturing-heavy areas support the president’s tariffs. 

Treasury Secretary Steven Mnuchin on Thursday drew fire from House lawmakers in both parties concerned with severe economic damage caused by trade battles with China and key U.S. allies.

Powell, a Republican, said the global pivot to freer trade following World War II had “served the global economy, and particularly the United States economy, very well.”

Even so, Powell acknowledged that “it’s driven incomes up but it doesn’t help everyone. There are there are always particular groups of people, particular populations and geographies that are that are negatively affected by trading.

“No country has really done a good job of addressing those concerns. We need to do that.”

Fed officials in their June meeting reported that businesses’ “plans for capital spending had been scaled back or postponed as a result of uncertainty over trade policy” and that farmers “were concerned about the effect of potentially higher tariffs on their exports.”

Powell must balance the Fed’s plans to raise interest rates gradually with the growing risk of economic harm caused by a burgeoning trade war. Rising prices triggered by tariffs could spur broader inflation while higher costs for goods and services potentially slow economic growth.

“I wouldn’t want to, you know, dive into a bunch of hypotheticals here, but I would say, you can imagine situations which would be very challenging, where inflation is going up and the economy is weakening,” Powell said.

Updated on July 12 at 12:10 p.m.