Central bankers weigh in on trade war threat

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‘The risk of trade wars is the negative impact on the growth prospects of the global economy itself, affecting everyone, including those who start it.’ -- Bangko Sentral ng Pilipinas Governor Nestor A. Espenilla, Jr. -- Photo by Melissa Luz T. Lopez

CENTRAL BANKERS around the world are grappling with the prospect of a global trade war sparked by US President Donald Trump’s plan to slap tariffs of 25% on steel imports and 10% on aluminum.

Here are extracts of some of the recent comments by central bank officials:

Central bank Governor Nestor A. Espenilla, Jr. said a trade war may result in slower global growth, which could hurt inflows from the more than 10 million Filipino workers who live and work abroad. Remittances amount to about 10% of gross domestic product and are key source of foreign income in the Southeast Asian nation.

“The risk of trade wars is the negative impact on the growth prospects of the global economy itself, affecting everyone, including those who start it,” Mr. Espenilla said in a mobile-phone message.

“The currency angle is but a small piece of the larger picture where there is less economic prosperity for all.”

Federal Reserve Bank of Dallas President Robert Kaplan, speaking with reporters on the sidelines of an energy conference in Houston, said it’s too soon to comment on the potential economic impact of the tariffs.

“Global trade is good for the US economy, and our trading relationships with Canada and Mexico we believe are very critical to US competitiveness,” he said.

Federal Reserve Governor Lael Brainard, one of the central bank’s most ardent doves, said on Tuesday it was too early to say if the possibility of a trade war could disrupt her outlook.

“We would take into account developments if they proved to be material to the outlook,” she said.

“It’s early to tell what the broader implications could be, so I see it as an uncertainty, but not something that would materially change my outlook, today.”

European Central Bank (ECB) policy makers were already in a quiet period ahead of next week’s rate meeting when Mr. Trump announced his plans, but they have made their views clear before.

“Geopolitical uncertainties and uncertainty regarding the policy outlook in some major economies, including the risk of an increase in trade protectionism, continued to constitute downside risks,” the bank said in January.

Don Nakornthab, a senior director at the Bank of Thailand, said a trade war is now the biggest risk for the central bank.

Exports of goods and services make up about 70% of the Southeast Asian economy.

“Trade politics is the most important risk for our economy as it can evolve into trade war,” Mr. Don said in an interview in Bangkok on Tuesday.

“If there’s an external shock in the near future, our economy may face a difficult time.”

Thailand’s trade surplus with the US exceeded $20 billion last year. The economy is in the early stages of an upswing and has been lucky to be able to “rely on external demand while we wait for local demand to gain more strength,” he said.

The central bank noted in its monetary policy statement on Wednesday that trade tensions have risen recently, but “at this point, risks to the global growth outlook remain balanced, pointing towards continuity in global economic expansion.”

Reserve Bank of Australia Governor Philip Lowe, whose economy is the most China-dependent in the developed world, said on Wednesday that Mr. Trump’s move was “highly regrettable and bad policy.”

“If it’s just confined to the current higher tariffs on steel and aluminum, then I think it’s manageable for the world economy. It’s not a positive, but it’s manageable,” Mr. Lowe said.

“This could turn very badly though if it escalates. If we see retaliation and a counter retaliation, this could turn into a very big shock for the global economy,” he added.

“History’s very clear here: protectionism is costly. It’s costly to the country that implements the protectionism, it’s costly to everyone else. It’s just not the right thing to do,” Mr. Lowe noted.

“So the best thing for everyone to do, perhaps even the hardest thing to do, but the best thing to do is just to sit still and do nothing, to not respond and to continue advocating for open trade.”

The Bank of Canada kept borrowing costs on hold Wednesday, citing recent developments in trade policy that have become “an important and growing source of uncertainty” for the global and Canadian economic outlooks.

While the central bank has been highlighting risks to the North American Free Trade Agreement (NAFTA) for months, the latest language suggests those concerns have evolved. Wednesday’s statement didn’t even mention NAFTA.

Riskbank Governor Stefan Ingves said it’s too early now to say what it would mean for the central bank’s forecast.

“It’s one thing to discuss higher tariffs on steel and aluminum, but if it turns into a general discussion around how different countries try to protect themselves, then it can never be good for the global economy and it would definitely not be good for the Swedish economy,” Mr. Ingves said on Tuesday in Stockholm.

National Bank of Hungary Governor Gyorgy Matolcsy said the country needs to prepare for a sharp turn in global economic conditions, including the end of the cheap money era.

There’s a “bellicose scenario” emerging in trade, exchange rates and the interest-rate environment, he said at a conference in Budapest on Tuesday. — Bloomberg