Prepare for a world with more tariffs: US Fed Official

Sep 24, 2019: Ignited by President Trump's conflict with China, the global economy is facing a future with higher tariffs and barriers to free trade than in the past eight decades, a Federal Reserve official said Monday.

As hopes for a rapid trade deal between the United States and China evaporated in August, St Louis Federal Reserve Bank President James Bullard drastically shifted his outlook and called for even more stimulus from the central bank.

After the Fed cut the benchmark interest rate in July for the first time in more than a decade, frictions with China reignited in August and it became clear "the trade war was going to linger for quite a while," Bullard told reporters.

Beyond just threats, tariffs have been imposed and are likely to remain in place for a long period.

"I think we should prepare for a future with somewhat higher tariffs and non-tariff barriers than we have seen historically," Bullard said following a speech in Effingham, Illinois.

After dissenting from the Fed vote last week to again cut the lending rate by a quarter point because he wanted a bigger move, Bullard said he still thinks a further reduction of 25 basis points is needed to help insure the economy against a downturn.

The deterioration of the trade dispute with Beijing "is a reversal of the trade liberalization consensus that existed in the United States for the last 75 years," and no other country is in a position to take on free trade leadership, he said.

The dispute has seen hundreds of billions in goods traded between the countries hit with steep tariffs. And Bullard said China appears likely to want to wait until the 2020 presidential elections, when Trump "might possibly be voted out."

"I think the world is going to have to transition to this new reality that trade won't be as free as it was before the trade liberalization consensus broke down in the United States," he said.

The trade dispute already is having a chilling effect on investment worldwide, and he warned in his speech that the economy "faces downside risk that may cause the slowdown to be sharper than expected."

AFP/APP