Fed Official Warns Trade Policies May Still Raise Prices and Slow Economic Growth
Federal Reserve Governor Adriana Kugler recently spoke about changes in U.S. trade policy. Even though the government is making adjustments, she says the main results will likely stay the same—Americans may see higher prices and weaker economic growth because of new trade barriers like tariffs.
Trade Barriers Are Changing, But the Effects Are Familiar
Kugler explained that trade policy is shifting, but the impact on the economy is not very different from what the country has seen in the past. During a panel discussion, she stated, “Trade policy is shifting, but the evidence still suggests that tariffs and other trade barriers tend to raise prices and reduce GDP.”
She pointed out that even if officials now talk more about national security or supply chain resilience, the main economic effects are unchanged. The same tools—like tariffs (taxes on imports) and export controls—continue to have similar results for American businesses and families.
How Tariffs Affect Prices and Businesses
Kugler shared details on how recent U.S. tariffs and restrictions are affecting the economy:
- Higher Prices for Consumers: When tariffs are placed on goods from other countries, companies often pass those extra costs to shoppers. Kugler said, “We have seen that when tariffs are imposed, the costs are often passed on to consumers in the form of higher prices.”
- Increased Costs for Businesses: Not only do families pay more, but businesses also end up spending more for the supplies and materials they need. “At the same time, businesses face higher input costs, which can reduce investment and productivity,” she explained.
Risks of Ongoing Trade Tensions
Kugler also warned about the risks if the U.S. and other countries keep raising trade barriers against each other. She says that retaliatory measures—when other countries fight back with their own tariffs—can hurt American exports.
- When the U.S. puts tariffs on imports, other countries may respond by making it harder for U.S. companies to sell their goods and services abroad.
- This can lead to less demand for American products, hurting U.S. businesses and workers.
- Overall, this could result in lower GDP (the measure of the total economy) and slower economic growth.
Focus on Security, But Economic Costs Remain
While the debate in Washington has shifted toward concerns about national security and reducing dependence on certain countries for key products, Kugler says the economic side should not be ignored. She explained, “While there is a growing focus on supply chain security and reducing dependence on certain countries, the tools being used—such as tariffs and export controls—still carry the same economic costs.”
Even with new reasons for these policies, like protecting national security or making supply chains stronger, the main effect is still that Americans pay more and the economy can slow down.
Washington Debates the Future of Trade Policy
The discussion comes as lawmakers in Washington argue about what’s best for the country. Some leaders want to be more aggressive about protecting American industries from foreign competition. Others worry that these protectionist measures will backfire and hurt the economy overall.
Kugler urged policymakers to think carefully about the long-term effects of their actions. She said, “The long-term effects on prices, growth, and competitiveness should be central considerations.” She believes it’s important to weigh both the costs and benefits before making big changes to trade policy.
Open Markets Help the Economy Grow
At the end of her talk, Kugler reminded everyone that open and predictable trade policies have helped the U.S. economy grow and remain stable in the past. She said, “History shows that open markets and international cooperation have been key drivers of prosperity. As we navigate new challenges, it is important not to lose sight of these fundamental lessons.”
Her message was clear: while it’s important to adapt to new situations and protect national interests, leaders should remember that closing off trade can lead to higher prices for families and businesses, and slow down the entire economy.
Key Takeaways from Governor Kugler’s Remarks
- Tariffs and trade barriers usually mean higher prices for consumers and less economic growth, even if the reasons for them change.
- Businesses face higher costs, which can lead to less investment and fewer jobs.
- Ongoing trade fights can make it harder for U.S. companies to sell their products in other countries, hurting exports and the overall economy.
- Open trade and cooperation with other countries have historically helped the U.S. economy thrive.