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Central bankers take up arms against protectionism

President of the European Central Bank (ECB) and chairman of the European systemic risk Board, Mario Draghi speaks as he attends a hearing of the European Parliament Committee on Economic and Monetary Affairs at the European Parliament in Brussels, in this February 06, 2017 photo. (AFP)
FRANKFURT AM MAIN: Officially concerned only with monetary policy, central bankers the world over are weighing in on political debates as fears of economic damage from protectionism mount.
“Protectionism will only lead to a loss of prosperity for all,” warned European Central Bank board (ECB) member Yves Mersch on Friday.
The Luxembourger’s words came just three weeks after US President Donald Trump took office with a speech that hammered home his “America first” stance, fueling concern that the US billionaire plans to shake up global trade rules.
Even before the inauguration, Trump was talking up tariffs, telling a German interviewer he would slap a border tax on BMW cars if the firm went ahead with the construction of a plant in Mexico.
“It surely cannot be the case that the way to build liberal prosperity is to build barriers between one another,” Reserve Bank of Australia (RBA) Gov. Philip Lowe said last week.
“Uncertainty surrounds the direction of US macroeconomic policies with potential global spillovers,” the Reserve Bank of India (RBI) worried in a statement last week after leaving its main interest rates unchanged.
“Global trade remains subdued due to an increasing tendency toward protectionist policies and heightened political tensions,” it noted.
In many advanced economies, central banks are free of government control, using their independent economic judgment to set interest rates and safeguard financial stability while remaining above the political fray.
But “central bankers have been advancing on to ground that is not really theirs for years, offering cautious policy recommendations,” Pictet bank economist Frederik Ducrozet told AFP.
Now “a further step has clearly been taken,” he said, as monetary policymakers brace for the uncertainties of Trump’s economic policies and the upcoming Brexit divorce negotiations, expected to take Britain out of the EU’s single market for goods, services, capital and labor.
Bank governors’ newfound readiness to pass comment is more a reflection that protectionism “was not much of an issue to talk about until recently” than staking out of a political position, economist Ben May of Oxford Economics told AFP.
Central bankers are at odds, however, about how high and far the global protectionist wave may rise.
“I do not think protectionism is likely to spread vigorously and widely in the world,” Bank of Japan (BoJ) Gov. Haruhiko Kuroda said in January.
Meanwhile, German central bank president Jens Weidmann warned last week of “mounting skepticism over globalization, a sentiment by no means confined to the US,” labeling Trump’s rhetoric “very worrying.”
“Barriers and exclusion would be the wrong response,” Weidmann added.
Both Germany and Japan stand to suffer if the US goes the protectionist route, as Trump has lashed out at both with accusations they are manipulating exchange rates to make their exports cheaper.

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