Trump’s protectionism poses “significant risk” to global growth says Bank of England
Policymakers at the Bank of England are concerned that protectionist economic policies pursued by US President Donald Trump could damage global growth, according to their latest assessment of the risks to the financial system.
The Bank’s financial policy committee (FPC) is concerned that “The potential for an increase in trade barriers represented a significant downside risk to growth, both in the United States and globally”, minutes from its meeting on 12 March published today show.
Trump has started a broad range of protectionist measures targeting trade with countries such as China, which the vast majority of economists think will damage the global economy. Last week he imposed $60bn (£42bn) of tariffs on Chinese imports, which he claimed was a response to a lax approach to intellectual property.
Read more: Hold the tariffs, Trump! Trade deficits are not a sign of weakness
Trump’s tax cuts, also enacted after the FPC’s last meeting in November, could also “reduce the policy space available to cushion future shocks to growth”, the minutes added.
Many economists have warned that the rise in debt-to-GDP ratios cause by the de facto fiscal stimulus could make the US government less likely to boost spending in the event of another crisis, giving it less elbow room if it wants to maintain or increase spending even if revenues fall.
Meanwhile, in a wide-ranging overview of the risks to the British financial system, the FPC also discussed the domestic credit environment, Brexit risks and banks’ financial buffers.
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On the domestic front the FPC said there “had been a gradual loosening in credit conditions in the mortgage market in recent years”.
The Bank FPC said measures to stop banks lending at loan-to-income (LTIs) ratios above 4.5 times were preventing a build of indebted households, but added there “had been increased lending at LTIs just below 4.5.”
On Brexit risks the FPC judged there had been a reduction in risks across some of the main risk areas, but it notably saw no reduction in the risks posed by cleared derivatives contracts, the asset management sector, and with personal data.
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