Officials from the Federal Reserve stated on Wednesday that uncertainty over a potential “trade war” from Trump’s trade tariffs could affect economic policy. The nation’s central bank needs to take a “wait-and-see” approach regarding the potential impact of any new trade tariffs imposed by the Trump administration, states Raphael Bostic, who is the president of the Atlanta Federal Reserve Bank.
One of the most influential and powerful fed governors, Lael Brainard, stated that new tariffs could cause great uncertainty about the future of any potential fed decisions. Brainaird stated that although tariffs could pose a problem, it is too early to say what tariffs would do the U.S. economy.
Robert Kaplan, the president of the Dallas Federal Reserve Bank, stated that hurting the relationships with some of the United States most important trade partners, such as Canada and Mexico, would not be in the best interests of the country.
Donald Trump plans to formally impose tariffs on aluminum and steel manufacturers that export their products to the United States. Trump has stated the tariffs would apply to every country in the world. Trump’s plan is to impose a tariff, or tax, of 10 percent on imported aluminum and 25 percent on steel.
Some economists fear the tariffs could lead to a trade war between the U.S. and countries that export goods to the states. A trade war starts when another country imposes tariffs on goods imported to their countries from the United States.
UK Trade Secretary Liam Fox is traveling to the United States and meeting with government and economic officials in an effort to seek exemption from the newly announced US steel and aluminum tariffs. Two weeks ago, President Donald Trump declared that his country will begin imposing a 25% duty on imported steel and a 10% tariff on imported aluminum with the goal of strengthening and protecting the internal US production of those materials. Trump believes that the US production of steel and aluminum has suffered due to unfair trade regulations and his objective is to boost the domestic market for these industries.
In a response to these tariffs, the European Union said it will be requesting an exemption of the duties for all of its 28 member countries, including the UK. Many countries, including influential China, have criticized Trump’s new trade plan, which goes into effect in just two weeks. Neighboring nations Mexico and Canada were granted a temporary exemption from the tariffs due to their partnership in the North American Trade Agreement (NAFTA). The US risks alienating many of its most important global allies and these countries have already threatened to bring this matter in front of the World Trade Organization (WTO). On Friday, Trump tweeted an indication that he was willing to work with Australian Prime Minister Malcolm Turnbull to ensure that his country will not be subject to the tariffs.
The plan by President Donald Trump to impose tariffs on certain imported products has raised concerns beyond the fear that such a policy could increase costs for American businesses and consumers. One economic observer believes that a “trade war” could reduce foreign investments, resulting in even more serious consequences for the U.S. economy.
Susan Aaronson, a professor of international affairs at George Washington University and an expert on trade policy, expressed the belief that such a policy could weaken the image of the United States as a reliable trading partner and thus a good place to make an investment. This is significant when considering that foreign businesses or organizations comprise approximately one-third of the investors in the American stock market. Additionally, about the same number of foreign entities own American treasury bonds, which are used to finance the American government and its many services.
In a theory outlined by Aaronson, foreign investors may turn against the United States for the imposition of tariffs and retaliate by discarding the bonds they have purchased. The result could be a dramatic increase in the cost of borrowing, with the effects falling on the U.S. government, corporations and even American citizens. Learn more about the possible consequences of a “trade war” at www.reddit.com/r/Economics.
According to Aaronson, the main resistance might come from America’s closest trading partners, including Canada, the European Union and Japan. When recommending the imposition of tariffs, Aaronson said that American leaders should first consider who will benefit and who will be harmed by the policy.