Protectionism Would Slow Pace of US Fed Rate Hikes, Say Economists

It’s likely still early days as far as the U.S. Federal Reserve is concerned for protectionism being a threat to economic growth.

U.S. Federal Reserve Board chair Janet Yellen holds a news conference on March 15, 2017 in Washington, D.C. The Fed kept rates unchanged on May 3. Chip Somodevilla/Getty Images

It’s likely still early days as far as the U.S. Federal Reserve is concerned about protectionism being a threat to economic growth.

While uncertainty continues to surround the Trump administration’s fiscal policy, what might be getting clearer is its trade policy. On April 24, the Trump administration hit Canada with a 20 percent tariff on softwood lumber imports. Gregory Daco, Head of U.S. Economics at Oxford Economics in New York, said in a phone interview that, for now, the administration’s approach is “trying to level the playing field.”

In a research note, RBC called the tariffs on softwood lumber a “shot across the bow.” And while the investment bank doesn’t expect a significant impact from this particular action on the Canadian economy, it said, “The shift in tone from our largest trading partner could be a sign of how aggressive the new administration will be in any NAFTA renegotiation.”

Canada shipped $9 billion of softwood lumber products in 2016 to the U.S., which represents about 0.4 percent of Canadian gross domestic product (GDP), according to the research note from RBC.

If a country adopts more protectionist policies, that tends to generate a reaction from other countries.

— Gregory Daco, Oxford Economics