Swati Dhingra, a member of the Bank of England’s Monetary Policy Committee, has warned that the use of tariffs could slow economic growth even as it temporarily helps reduce inflation. Her remarks highlight the complex trade-offs policymakers face in balancing price stability with long-term economic expansion amid global trade tensions and shifting policy strategies.
Dhingra explained that while tariffs can lower inflation in the short term by reducing demand and limiting imports, they also tend to raise costs for businesses and consumers over time. By increasing barriers to trade, tariffs often lead to higher input prices and supply chain disruptions, which can ultimately feed back into inflationary pressures once the initial demand shock fades.
Her comments come at a time when several major economies are reevaluating their trade policies, introducing or threatening tariffs in response to geopolitical and economic pressures. Dhingra emphasized that these measures, while politically appealing as tools of protectionism, carry long-term risks that can undermine competitiveness and productivity.
According to her analysis, tariffs effectively act as a tax on imports, discouraging foreign goods and making domestic products relatively more expensive. This may reduce overall consumption, helping central banks meet inflation targets in the short term. However, such effects often come at the expense of slower investment and weaker growth, as businesses face higher costs and reduced access to global markets.
Dhingra’s warning also reflects broader concerns within the Bank of England about the fragile state of the UK economy. While inflation has shown signs of easing, growth remains sluggish, and productivity levels have not recovered to pre-pandemic strength. The UK’s exposure to global trade makes it particularly vulnerable to shifts in tariffs and protectionist policies.
She noted that policymakers must carefully consider the long-term implications of such measures. A reliance on tariffs or trade restrictions could harm industries that depend heavily on imported materials or components. Moreover, retaliation from trading partners could further constrain exports, deepening the economic slowdown.
Economists generally agree that while tariffs might offer temporary inflation relief, they are a blunt instrument for managing prices. Supply-side policies, such as improving productivity and easing labor shortages, tend to provide more sustainable solutions. Dhingra’s comments underline the need for coordinated fiscal and monetary policy that supports both stable prices and economic resilience.
The warning also comes amid growing debate about the Bank of England’s policy direction. With inflation still above target but economic activity weakening, the central bank faces pressure to balance the risks of cutting rates too soon against the danger of prolonged stagnation. Dhingra’s remarks suggest that external factors like trade barriers could complicate this balancing act by dampening growth further.
In summary, Dhingra’s statement serves as a reminder that the fight against inflation cannot rely solely on restrictive measures or trade barriers. While tariffs may seem to offer a quick fix, they come with long-term consequences that could slow growth, strain industries, and limit the benefits of global trade.
Her perspective reinforces the importance of pursuing policies that encourage sustainable economic development, innovation, and open trade. As the global economy becomes more interconnected, the costs of protectionism could outweigh its perceived short-term gains, leaving policymakers with even tougher decisions ahead.
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