Bullard Sees Trade Turmoil as ‘Pandora’s Box’ Risk to Economy

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© Reuters. Bullard Sees Trade Turmoil as ‘Pandora’s Box’ Risk to

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From his perch at the helm of the Federal Reserve Bank of St. Louis, James Bullard is based in one of early America’s great trade outposts, a town crisscrossed by two mighty rivers that nowadays carry Midwestern commodities to markets abroad and an interstate highway where trucks haul goods from Maryland to Utah.

Better known for his dovish monetary-policy views and calls for aggressive interest-rate reductions that echo some officials in the Trump administration, Bullard lately is offering some blunt observations about the decline in U.S. influence on the free-flow of goods and globally.

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 “U.S. leadership towards trade liberalization has been sidelined,” Bullard told reporters this week in London. “Now it’s going to be hard to see who’s going to be the leader on trade liberalization.”

The U.S.- trade war is the biggest drag on a slowing global economy, the International Monetary Fund said in new forecasts on Tuesday. The fund’s modeling shows the tariff battle will cost 2% of lost economic output in the short run and shave 0.6% off of U.S. gross domestic product. For the U.S., that’s the equivalent of losing Nebraska’s contributions.

The damage is creating uncertainty that’s hurting investment and causing in financial markets. Bullard doesn’t see trade turmoil subsiding soon — not with a mini deal like the one and Washington discussed last week or any other short-term fix. To him, investors who bet on a quick end to the tariff hostilities are misguided.

“The markets have had this idea that trade would be an issue but resolution was just around the corner. That is what I am pushing back on,” Bullard said. “We have opened Pandora’s box. Trade is very hard to resolve. They are very long and very involved — over a long period of time.”

Why is it such a long-term problem? “Most countries really don’t want to get to a solution because they are kind of mercantilistic at heart and have pressures on them to protect certain industries,” he said.

Charting the Trade War

The International Monetary Fund lowered its global growth forecast, blaming trade tensions for a broad deceleration across the largest economies. It slashed the estimate for the growth in trade volume to a “near standstill” pace of just 1.1% from 3.6% last year, though it also sees a pickup to 3.2% in 2020.

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Source: Investing.com

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