Federal Reserve Chairman Jerome Powell said protectionism can hurt economic growth and potentially undermine wages, just as the U.S. ratchets up trade tensions with commercial rivals as well as longstanding allies.
Testifying Tuesday before the Senate Banking Committee, Powell was responding to lawmaker questions about the economic impact of President Donald Trump’s tariffs.
“In general, countries that have remained open to trade, that haven’t erected barriers including tariffs, have grown faster. They’ve had higher incomes, higher productivity,” he said. “Countries that have gone in a more protectionist direction have done worse.”
The Fed chairman also said concerns about trade policy “may well” have an impact on wages and capital expenditures, which are known as capex. “We don’t see it in the numbers yet, but we’ve heard a rising chorus of concern which now begins to speak of actual capex plans being put on ice for the time being,” he said.
Powell’s comments come as an increasing number of economists and policy makers warn that trade tensions threaten to undermine global growth. The International Monetary Fund on Monday said world output could drop by about 0.5 percent below its projected level by 2020 if threatened trade barriers become reality. The U.S. economy would be “especially vulnerable” because it would be the focus of retaliation in a tit-for-tat conflict, the Fund’s chief economist Maurice Obstfeld said.
Powell was more circumspect in his opening statement on the topic of trade, saying only that it’s “difficult to predict’’ how tensions will shape the economic outlook. His remarks on the economy were otherwise largely optimistic, as unemployment stands close to an 18-year low and inflation rises around the Fed’s 2 percent target. Powell said the central bank will continue to gradually raise interest rates “for now.’’
But senators of both parties during the question-and-answer session tried to draw the Fed chairman into the political debate by pressing him on trade. Powell was careful not to specifically criticize Trump’s policies, which are designed to pressure partners to reduce barriers against American goods. The White House in recent months has slapped duties on shipments of high-tech goods from China as well as steel and aluminum from most of its trading partners.
“Trade is really the business of Congress, and Congress has delegated some of that to the executive branch,” Powell said. “But nonetheless, it has significant effects on the economy. And I think when there are long-run effects we should talk about it, and talk in principle.”
Asked whether he viewed the European Union as an economic foe of the U.S., Powell said “no, I do not.” Trump said earlier this month he sees the bloc as an adversary on trade.