Escalating international trade tensions get top central bankers worried

The world’s most-powerful central bankers warned that escalating international trade tensions have started damaging confidence among companies, threatening the global economic expansion.

“Changes in trade policy could cause us to have to question the outlook,” Federal Reserve Chairman Jerome Powell said during a panel discussion at a European Central Bank conference in Sintra, Portugal. “For the first time, we’re hearing about decisions to postpone investment, postpone hiring.”

His sentiment was echoed at Wednesday’s event by Bank of Japan Governor Haruhiko Kuroda, ECB President Mario Draghi and Reserve Bank of Australia Governor Philip Lowe. Those four central banks set monetary policy for more than a third of the world’s economy.

A trade war would be a headache for central banks given it would likely deal stagflationary blows to their economies by forcing consumer prices up and demand down. The policy makers would then be forced to decide whether to act to support growth or cap the inflationary pressures, for example by hiking interest rates.

US President Donald Trump on Monday evening threatened to impose tariffs on another $200 billion of Chinese imports, prompting a response from Beijing warning of additional retaliation. The European Union also made good on a threat to hit American goods with retaliatory tariffs.

Draghi said it was still too early to measure a significant economic impact, but that he had begun worrying about an erosion of confidence, among both businesses and consumers.