By Paul Hannon

A significant shift is under way in U.S. economic policy that poses a threat to global economic growth, Bank of England Governor Andrew Bailey said Wednesday.

Bailey spoke to lawmakers a day after U.S. President Donald Trump pressed ahead with higher tariffs on imports from Canada, Mexico and China. Trump has also threatened to impose tariffs on imports from the European Union.

"The risks to the U.K. economy, and the world economy, are substantial," Bailey said.

Trump's approach to international agreements and bodies has led to speculation that the U.S. might withdraw from the International Monetary Fund and the World Bank, the two institutions launched after World War II to help avoid a repeat of the Great Depression.

"That would be a very damaging thing for the world," Bailey said.

Other BOE rate setters appearing at a quarterly hearing in the legislature echoed Bailey's concerns about the threat to growth from higher tariffs.

"Trade is another form of technology, it makes us better off," said Alan Taylor, a professor of economics at Columbia University. "If you put sand in those wheels, it makes us worse off."

Bailey said that trade imbalances are a problem, with some economies such as China running big goods surpluses, while the U.S. and the U.K. have large deficits.

"China has to answer the question, why is domestic demand so weak?" Bailey said.

Weak domestic demand has also enabled Germany to run large trade surpluses. However, the parties that are likely to form the new coalition government Tuesday announced plans to spend heavily on defence and upgrading infrastructure over coming years that should boost imports.

"Germany has the same issue, but in the last 24 hours Germany has done something quite radical," Bailey said.

The central banker noted that the U.S. government has a large budget deficit, a feature that is usually associated with large trade deficits.

Bailey said it would be better for global growth if these problems were addressed through negotiations rather than tit-for-tat tariff increases.

"The place to solve these problems is a multilateral forum," he said.

Write to Paul Hannon at paul.hannon@wsj.com

(END) Dow Jones Newswires

March 05, 2025 10:53 ET (15:53 GMT)

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