US central bankers warned Thursday that the risks and uncertainty created by tariffs and restrictive trade policies could undermine strong business confidence and investments.
The Federal Reserve cited increasing concerns among businesses about domestic and foreign trade policies, as well as rising prices for goods like steel and aluminum.
The minutes of the June 12-13 policy meeting when the Fed raised the benchmark lending rate for the second time this year, also said officials believed it would be “appropriate” to continue gradual rate hikes.
The rate-setting Federal Open Market Committee last month also surprised financial markets by signaling it was likely to raise the key rate twice more this year to get ahead of rising inflation pressures but it said that would still allow the economy to continue to expand and create more jobs.
Still, as President Donald Trump is set to impose steep tariffs on tens of billions in Chinese goods starting Friday, added to existing tariffs on steel, aluminum and other products, there were more signs of concern in the Fed’s deliberations about the outlook.
China has vowed to retaliate dollar-for-dollar, following the example of Canada, Mexico and the European Union in hitting back against Trump’s aggressive trade stance and sparking a global trade war.
“Most participants noted that uncertainty and risks associated with trade policy had intensified and were concerned that such uncertainty and risks eventually could have negative effects on business sentiment and investment spending,” the minutes said.
Declaring victory too soon?
Companies around the country told the Fed some were already seeing the impact. In addition to higher prices, spending plans had been “scaled back or postponed as a result of the uncertainty over trade policy” and they warned of the potential for further “adverse effects…on future investment activity.”
Nevertheless, the Fed minutes noted the economy had continued to expand and rising oil prices, while impacting inflation, would support investment in the petroleum sector.
Other industries also remain upbeat but continue to face difficulty finding workers, which is constraining expansion plans and forcing them to raise wages and invest in training or automation, which also could fuel prices.
Wage increases have remained moderate so far but central bankers are encouraged inflation has finally reached the Fed’s two percent target after languishing for many months.
But officials said it was too soon to declare victory since it was not assured the rate would remain at that level over time.
In fact, some committee members said a “temporary” uptick in inflation above two percent could help cement market expectations that price increases are coming.
That is a process central bankers call “anchoring” inflation expectations, which is important in monetary policy since a belief prices will fall can sap economic activity. — AFP

Prime Minister Theresa May wants to align Britain with EU rules for trade in goods after Brexit, reports said Thursday, setting up a showdown with eurosceptics on the eve of a crucial cabinet meeting intended to finally settle the issue.
The proposals were leaked as carmaker Jaguar Land Rover became the latest firm to warn that new trade barriers with Europe could imperil thousands of jobs and billions of pounds in investment.
May will gather her warring ministers at her country retreat on Friday to finally agree on what they want from the future relationship with the EU, amid warnings time is running out to agree a deal with Brussels.
But eurosceptics in her Conservative party responded with outrage to leaked papers suggesting she wants to keep a “common rulebook for all goods including agri-food”.
“This is not Brexit,” tweeted one MP, while another said it would leave Britain “out of Europe but still run by Europe”.
Earlier, reports suggested that Brexit Secretary David Davis warned May her proposal for new customs arrangements was “unworkable” and would not be accepted by the EU.
The European Union itself has also said again and again that Britain cannot “cherry-pick” bits of EU membership it likes.
There is less than nine months before Britain leaves the bloc, and just weeks before May’s self-imposed deadline of October to reach a deal, but negotiations have all but stopped.
Meeting German Chancellor Angela Merkel in Berlin, May said her ministers would decide on Friday on “a substantial way forward which will enable the pace and intensity of the negotiations to increase”.
European leaders have warned that she is running out of time, while businesses have also increased their warnings in recent weeks about the need to avoid new trade barriers.
Airbus, BMW and Siemens have warned in recent weeks that they could pull investment, and Jaguar Land Rover added its voice on Thursday.
“We urgently need greater certainty to continue to invest heavily in the UK and safeguard our suppliers, customers and 40,000 British-based employees,” chief executive Ralf Speth said.
US deal in jeopardy
May has repeatedly promised to leave the EU’s customs union and single market, which would free Britain to build its own trading regime and allow it to control migration from the bloc.
But the move risks severe disruption to business, as well as the return of border checks between Northern Ireland and EU member Ireland — something she has pledged to avoid.
Earlier details of May’s plan suggested that technology would allow Britain to both set its own tariffs on goods coming into the bloc and maintain those of the EU — “the best of both worlds”, as one source said.
But the leaked document suggests she would also propose “ongoing harmonisation with EU rules on goods” which would make external deals — notably with the United States, the big prize of eurosceptics — more difficult.
“What’s the point if we can’t free trade with global giants?” asked one Conservative MP.
May has sought to balance the rival factions of her party ever since taking power after the June 2016 referendum.
But with the EU and businesses now stepping up preparations for the possibility that the talks collapse, she has been forced to decide.
Extend the talks?
If cabinet agrees to her plan on Friday, the government intends to publish a detailed blueprint of what it wants from the wider future relationship with the EU next week.
But it then has only weeks to agree an outline deal by October, to allow it to be ratified by the British and European parliaments by Brexit.
Austrian Chancellor Sebastian Kurz, whose country holds the EU presidency, raised the possibility of extending the Brexit talks.
“Our goal is that we reach an agreement with the UK,” he said on Thursday.
“But if that’s not possible, we have to avoid a hard Brexit. So our goal is clear, but if not, I think it’s good to keep negotiating.”
During the cabinet meeting on Friday, eurosceptics are likely to press their case but so too will those, like Finance Minister Philip Hammond, who fear the economic risks.
Jaguar Land Rover’s Speth said a “bad Brexit” deal that reimposes barriers between Britain and its biggest trading partners “would cost Jaguar Land Rover more than £1.2 billion ($1.6 billion, 1.3 billion euros) profit each year”.
“As a result, we would have to drastically adjust our spending profile,” he warned, noting that JLR plans to invest £80 billion in the next five years.
“This would be in jeopardy should we be faced with the wrong outcome.” — Alice Ritchie and Jitendra Joshi, AFP

Asian stocks were treading water Friday as traders braced for the introduction of tit-for-tat tariffs between the United States and China that experts warn could have a damaging impact on the world economy.
Shares in Shanghai and Hong Kong made little ground but Tokyo stocks followed Wall Street higher, as investors took some heart from news of trade talks between Washington and the European Union.
In Tokyo, the benchmark Nikkei 225 index advanced 0.89 percent or 190.70 points to 21,737.69.
Hong Kong’s Hang Seng index also edged higher by 0.18 percent but China’s main market, the Shanghai Composite Index, was fractionally down by 0.09 percent.
Investors broadly took to the sidelines with around $34 billion in US tariffs on Chinese goods set to be unveiled in the middle of the Asian trading session.
China has vowed to hit back immediately with a similar amount in tariffs.
But these could be just the first skirmishes in a trade war between the world’s top two economies, with financial markets worried about a knock-on effect on the wider global economy and the broader trading system.
Trump has threatened to impose tariffs on some $450 billion of Chinese goods — virtually all of China’s imports — as he seeks to advance his “America First” protectionist agenda.
Beijing has accused the US of “firing on the whole world” with the measures, pointing out that most of the Chinese goods under attack are made by companies with large foreign investment — including America.
Greg McKenna, chief market strategist at AxiTrader, said “there has been a subtle but distinct shift in the number of voices who are now saying this could all end up in a big global mess with a huge hit to global growth”.
However, Hikaru Sato, senior technical analyst at Daiwa Securities, said the market “has already factored in” this stage of the US-China trade battle and is looking towards the next spat.
Zero tariffs
In the US and Europe, traders were cheered by comments from the US ambassador in Berlin, who told bosses of Germany’s biggest car firms that Washington was calling on the EU to bring tariffs to zero on car imports — in exchange for equal treatment by the US.
This drove European car stocks sharply higher and dragged up wider markets.
In New York, traders returned from the July 4 holiday in a relatively bullish mood, pushing the Dow Jones index up nearly one percent as they cheered solid US employment data.
Auto giants led the gains — buoyed by the headlines from Berlin — and tech stocks like Google parent company Alphabet and Facebook were also higher.
Oil prices were also sharply lower amid pressure by US President Donald Trump on the oil exporting cartel OPEC to cut prices.
Key figures around 0300 GMT
Hong Kong – Hang Seng: DOWN 0.3 percent at 28,104.94
Tokyo – Nikkei 225: UP 0.7 percent at 21,690.37
Shanghai – Composite: DOWN 0.4 percent at 2,722.36
Euro/dollar: UP at $1.1686 from $1.1662
Pound/dollar: DOWN at $1.3211 from $1.3228
Dollar/yen: UP at 110.65 from 110.39 yen
Oil – West Texas Intermediate: DOWN $1.04 at 72.81 per barrel
Oil – Brent Crude: DOWN 60 cents at 77.69 per barrel
New York – Dow: UP 0.8 percent at 24,356.74 (close)
London – FTSE 100: UP 0.4 percent at 7,603.22 (close)
— AFP