Bank of England govenor Mark Carney delivers a speech at the International Fintech Conference in London on April 12 2017. Picture: REUTERS/NEIL HALL
Bank of England govenor Mark Carney delivers a speech at the International Fintech Conference in London on April 12 2017. Picture: REUTERS/NEIL HALL

London — A global trade war, at risk of escalating, may already be slowing world economic growth, Bank of England (BoE) governor Mark Carney warned in a speech on Thursday.

Carney spoke on Friday as the US was set to begin enforcing tariffs on more than $34bn in Chinese imports.

"There are some tentative signs that this more hostile and uncertain trading environment may be dampening activity," Carney said in a speech titled, From Protectionism to Prosperity. "For example, survey measures of global export orders and manufacturing output have fallen back from highs at the start of this year," added Canadian national Carney, whose own country is embroiled in a cross-border trade war with the US.

The BoE, in addition, forecast that further escalation in the trade war, or a 10 percentage point rise in tariffs between the US and all its trading partners, could erase 2.5% of US output and 1% of global economic output.

"Protectionism affects the real economy through three channels," Carney said. "There are direct effects, through reduced trade flows, disrupted supply chains and higher import costs. And there are indirect effects, via business and consumer confidence and financial conditions.

"If implemented, the tariffs announced thus far [between the US and China, the US and EU, and the US and its North American Free Trade Agreement (Nafta) partners, as well as the potential US tariffs on EU motor vehicles and parts], will broadly double average bilateral tariff rates, and could raise average US tariffs to rates not seen in more than 50 years."

But in what appeared to be an olive branch to US President Donald Trump as the EU battles to dissuade him from imposing hefty levies on European cars, on Thursday, German Chancellor Angela Merkel said she would support possible talks with trading partners on lowering vehicle tariffs.

On Sunday, Trump charged that Europe is "possibly as bad as China" on trade, as he reiterated that he is mulling import taxes of 20% on EU cars, after having already imposed punitive duties on steel and aluminium.

The EU has slapped tariffs on iconic US products, including bourbon, jeans and Harley-Davidson motorcycles, as a symbolic tit-for-tat response to the metal duties.

Canada has, meanwhile, hit back at the US with retaliatory tariffs on American summertime essentials including Florida orange juice, ketchup, and Kentucky bourbon, in an opening salvo in a North American trade war with Trump.

Beijing has vowed to respond to Trump’s looming action with its own tariffs on US goods as soon as Friday, arguing it has "no choice but to fight" and accusing Washington of "opening fire on the whole world" with the trade restrictions.

Not to be outdone, Washington has threatened to introduce even steeper US counter-measures, potentially covering another $400bn in Chinese goods.