Barr: Higher tariffs lead to growth in inflation, unemployment

Federal Reserve Gov. Michael Barr is warning that higher tariffs are complicating an otherwise strong economy and will likely cause rising inflation and higher unemployment..“The outlook has been clouded by trade policies that have led to an increase in uncertainty, contributing to declines in measures of consumer and business sentiment,” Barr said May 9 during a speech in Iceland. “I expect tariffs to lead to higher inflation in the United States and lower growth both in the United States and abroad starting later this year.”Barr said tariffs could cause global trade networks to adjust quickly, with some suppliers struggling to adapt fast enough to withstand those changes. Barr said those changes could be especially challenging for small businesses, which are generally less diversified and have a harder time accessing credit. A Democrat, Barr sees the Federal Open Market Committee as being in a strong position to adjust as financial conditions evolve because the economy remains relatively strong and interest rates are moving down closer to 2 percent. The FOMC last week kept interest rates at a target range of 4.25 percent to 4.5 percent. Barr’s comments came three days before the world’s two largest economies, China and the United States, agreed to significantly reduce the tariffs they had imposed on each other for 90 days, causing the stock market to rise. Under the agreement, the combined U.S. tariffs rate on Chinese imports are dropping to 30 percent from 145 percent, while China’s levies on U.S. imports are falling to 10 percent from 125 percent. The U.S. still has a 25 percent tariff on all imported goods from Canada, except for energy and potash, which face 10 percent tariffs. The U.S. also has 25 percent tariffs on all imports from Mexico, except for goods deemed compliant with the 2020 trade agreement between the two countries.