Fed Official: Trade War Inflicted Lasting Damage On The U.S. Economy

Matty-Sways

Loretta Mester speculated that trade war will have long-lasting effects on the U.S. economy.

A Federal Reserve official said trade conflict with China the last two years has likely left a damaging mark on the U.S. economy, according to Yahoo! News.

Loretta Mester, president of the Federal Reserve’s regional bank in Cleveland, said the overall trade picture is “somewhat better” heading into 2020 with the partial agreement signed with China to call a truce in the dispute with Beijing as well as a new continental free trade pact with Canada and Mexico.

“Nevertheless, some long-lasting effects arising from the trade war are likely,” she said in a speech to the National Association of Business Economics.

Yet, some foreign companies “have reoriented their supply chains away from U.S. firms, which means these exports may be permanently lost.”

Investment, too, is a source of concern.

“Without investment in new technologies and capital, productivity will continue to be weak, dampening the economy’s growth potential and living standards.”

The outbreak of the new coronavirus in China casts a cloud on uncertainty over the outlook and Mester cautioned that it would be difficult to compare is to past health issues, like the SARS epidemic in 2003, which caused a minor slowing in the U.S. economy.

“China was not as big a player in the global economy back then as it is today, so there is the potential for a larger impact,” if supply chains are disrupted or investment postponed, she said.

“On the other hand, China now has more resources with which to address the epidemic than it had in 2003,” which might mean “less protracted” damage to the economy.

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