An escalation of protectionist measures could spark a fresh downturn just as the global economy is picking itself up after the last one, the international body that represents the world’s central banks has warned.
The Bank for International Settlements (BIS) said there were already signs that “the ratcheting up of rhetoric” was weighing on investment. It comes as Donald Trump steps up hostility with some of the US’s key trading partners and allies, raising fears of a full-blown trade war.
What began with tariffs imposed on steel and aluminium imported into the US has turned into a broader trade battle with trading partners including China and the EU, as they respond with retaliatory measures.
The US president is threatening Beijing with tariffs on $200bn of goods imported from China and on Friday Trump threatened to impose tariffs on European cars after Brussels introduced levies on American goods such as Levi’s jeans, bourbon whiskey and Harley-Davidson motorbikes.
Agustín Carstens, the general manager of BIS, said an increase in protectionist measures was a key vulnerability in the global economy that threatened to undermine growth and could spread to financial markets.
“One possible trigger of an economic slowdown or downturn could be an escalation of protectionist measures. Its impact could be very significant, if such escalation was seen as threatening the open multilateral trading system.
“Indeed, there are signs that the rise in uncertainty associated with the first protectionist steps and the ratcheting up of rhetoric have already been inhibiting investment.”
In its annual report on the challenges facing the global economy, BIS said that the ultra-low interest rates implemented by central banks as an emergency response to the financial crisis had served the global economy well but said loose monetary policy was posing a threat to stability.
“Ten years after the start of the global crisis, central bankers should feel satisfied with the state of the global economy, after expansionary and unconventional monetary policies were left to bear the burden of recovery,” Carstens said.
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