US tariffs to weigh on economy despite recent reprieve: Federal Reserve official

[WASHINGTON] Washington and Beijing’s agreement to temporarily reduce tit-for-tat tariffs marks an improvement for trade, but levels remain high and are likely to weigh on economic growth, said a senior Federal Reserve official on Monday.

The comments by Fed governor Adriana Kugler, at a symposium in Ireland, came shortly after the United States and China said they would sharply lower tariffs on each other’s goods for 90 days while negotiations continued.

“Obviously that’s an improvement as far as trade between the two countries” is concerned, Kugler said.

But she added that levels remain “pretty high,” noting that the world’s biggest economy imports many items from China.

With the latest agreement, the United States is set to lower its tariffs on Chinese goods from 145 per cent to 30 per cent, while China will reduce its retaliation from 125 per cent to 10 per cent.

“I still expect an increase in prices and a slowdown in the economy,” Kugler warned, although she anticipates this will not happen to the same extent as before.

All eyes are on whether the 90-day pause will be sustained, she said, adding that things are moving in the right direction for now.

In a prepared speech, she also said on Monday that “trade policies are evolving and are likely to continue shifting, even as recently as this morning.”

“Still, they appear likely to generate significant economic effects even if tariffs stay close to the currently announced levels,” she added.

And the uncertainty associated with these tariffs has already generated effects on the economy, bogging down sentiment and causing companies to ramp up imports as they try and get ahead of fresh levies.

Since returning to the presidency in January, Donald Trump has unleashed tariffs on allies and adversaries alike, including a sweeping 10 per cent tariff on most US trading partners and steep rates on goods from China. AFP