Donald Trump imposing massive US tariffs on Chinese imports could drag down global inflation by lowering the price of goods in other countries, a senior Bank of England policymaker has said.
Swati Dhingra, an external member of the Bank’s rate-setting monetary policy committee, said Trump imposing a threatened 60% tariff on goods from China sold in the US could lead Chinese exporters to cut their prices elsewhere to ensure they maintained current trade volumes.
“If there is the kind of big 60% type of tariff increase that’s been proposed, that will have repercussions on to world prices, and mostly on the downward direction,” she said.
Speaking at a conference in London on Monday, the economist said there was heightened uncertainty about what policies the president-elect would carry through from the campaign trail. Trump warned before this month’s election that he would slap tariffs of up to 60% on China and up to 20% on other US trade partners.
However, Dhingra said the “textbook” impact of the world’s largest goods importer imposing such a large tariff on products from the world’s biggest exporter would be for global goods prices to fall.
Chinese firms would respond to tougher trade barriers by attempting to find buyers in alternative markets, which could lead them to lower their prices to sell similar volumes, including in the UK, she said.
“It takes a massive amount of demand out of the world market. The way exporters, say in China, would respond to that would be to respond with prices, world prices, as they don’t want to lose market share,” she said.
Economists have warned Trump imposing punitive import tariffs on US trading partners will drive up inflation in the world’s largest economy, as the costs would be borne by US consumers. However, it would also affect the wider global economy.
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Dhingra said much would depend on the response to a burgeoning trade war, particularly if governments chose to retaliate with “tit for tat” tariffs on US imports, or with protectionist measures to prevent an influx of cheap Chinese goods reallocating away from the US market.
“Then we’re in a completely different situation,” she said.
Drawing a comparison with Brexit, Dhingra said that leaving the EU had led to “permanently” higher prices of products for British households. This had generated inflation as prices rose, before prices stabilised at a higher level.
“We saw much higher price increases in the UK compared to everywhere else and those pressures have now come off much more quickly as well, for the reason they’re not inflationary, they change the price levels, permanently,” she said.
Analysts have warned that the euro risks falling to parity with the US dollar for the first time since late 2022 if a new transatlantic trade war weakens the already struggling eurozone economy.