United States should rethink its approach to trade, says Bank of England Governor Andrew Bailey. He suggests to stop the import tariffs and have open dialogues. Bailey said this in a meeting with British lawmakers. Bailey said the global economy’s problems should be solved through discussion not tariffs.
In South Africa, Bailey met with fellow Group of 20 central bankers and finance ministers last week. Discussions included the detrimental effects of current import tariffs. The meeting discussed the need for open trade. U.S. Scott Bessent, the Treasury Secretary, was absent from the meeting. Bailey said the economic imbalances have to be discussed in a multilateral forum. He cautioned against taking unilateral bilateral actions on such matters.
Bailey’s comments come after President Trump placed new tariffs on various imports. The president imposed a 25% tariff on readjusted goods from Mexico, Canada. These tariffs took effect on Tuesday. Additional duties also target Chinese products. Critics think that these measures can slow down economic growth worldwide. They are also concerned about inflation in the U.S.
Domestic Policy and International Concerns
While speaking to the Treasury Committee, Bailey discussed other global economic challenges. China has a very large current account surplus, he noted. Import tariffs can have complex effects; for instance, Bailey said that Germany, another surplus country, unveils a radical plan. The plan is for 500 billion euros in investments in infrastructure and military. This announcement took place on Tuesday. Bailey compared the situation to that of the U.S.
He argued that the United States faces a serious challenge. India has a high current account deficit (CAD) and a large fiscal deficit. Bailey noted that the U.S. relies on external capital to fund its deficits. He warned that it would be a disaster for the world if the U.S. leaves the IMF and World Bank. Bailey also said Bessent is pro multilateral over unilateral actions.
Discussions on Monetary Policy
Most of Bailey’s speech was about interest rates. The Bank of England cut rates last month. This reduction marked the third cut since August last year. The current standard interest rate is 4.5%. After 5.25%, this is a long-term peak. Members of the Bank’s rate-setting committee discuss the suitable change in future
Most committee members described the approach as “careful”. They stressed that lowering rates should not be rushed. A few members preferred the term “cautious”. They were concerned that inflation could be higher than expected. Bailey himself chose the word “careful”. He doubted that inflation would be a lasting issue. He asked if inflation would trigger second-round effects. The weak economy pattern could prevent inflation from getting out of control.
A member of the Monetary Policy Committee from a different country has words like “gradual” and “careful” in mind. He thought these words best approximated the risks of import tariffs causing inflation volatility. Taylor cautioned that “cautious” might imply a one-sided risk bias. Another external member, Megan Greene, supported a cautionary response. In her written comments, she said we need to be careful about changes in monetary policy. She noted that a rapid easing could be dangerous.
The talk also had Chief Economist Huw Pill. He spoke with Reuters last month. Pill shared a cautious outlook on further rate cuts. He informed the legislators that the economy did not support fast changes. He held a similar view to those who wanted the monetary policy to be restrained.
Bailey’s speech calls for a reasonably sober approach and collective action on the economy. Telling, Sebastian’s comments not only ‘instructional calls’ but also caution against unilateral economic actions like imposing import tariffs.
