Good Economic Morning This Wednesday, July 18th 2018

THE BIG DEAL–Fed chief lays out risks of trade war

Federal Reserve Chairman Jerome Powell told lawmakers Tuesday that mounting trade tensions between the United States and key economic partners could pose serious risks to the U.S. and global economy.

In testimony at the Senate Banking Committee, Powell was cautious in his remarks and tried to avoid commenting directly on President Trump’s policies, even as lawmakers from both parties pressed him on how deeply the U.S. could be harmed in a trade war.

But Powell said escalating tariffs between the U.S. and others had already stunted business growth even though it was still too early to know the final impact.

“If it results in lower tariffs for everyone, that will be a good thing for the economy,” he said of Trump’s trade policy. “If it results in a higher tariffs across a broad range of goods and services that remain that way for a long time, that will be bad for our economy and other economies, too.”

Powell, a Republican, also defended the global trading system that Trump has sought to upend, and he advocated for the eventual removal of tariffs. The Hill has more here about Powell’s testimony and the questions he faced from lawmakers.

Why it matters:

  • Lawmakers, business groups and agriculture exporters have expressed worries that Trump’s tariffs on steel, aluminum and Chinese goods — and the retaliation they spur — could cause widespread economic harm.
  • Powell and Fed officials have noted recently that U.S. businesses have abandoned expansion plans due to rising costs and growing uncertainty driven by tariffs.
  • Powell insisted that trade issues are not within the bank’s mandate, but he said that high tariffs and trade barriers are typically harmful.
  • The EU, Mexico, Canada and China have targeted agricultural and manufactured goods produced mainly by states that are home to Trump’s electoral base. The retaliatory tariffs they imposed on corn, soybeans, cotton, pork, apples and other major crops could cause severe losses for U.S. farmers.

What comes next: Powell will testify before the House Financial Services Committee, and will likely face many of the same questions. The panel grilled Treasury Secretary Steven Mnuchin early last week and demanded answers from him about the goals and length of Trump’s trade showdowns.

Editor’s Note: Tariffs are nothing new and were used to gather most of the taxes the Federal Government ran of for about 200 years. It was also used to protect American industry, maybe a little too much at times, from competition of foreign countries. If used properly, it could bring back hundreds of thousands of jobs in industry.  

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