Andrew Bailey, governor of the Bank of England, has lashed out at the repeated tariff-raising threats of US President Donald Trump, describing them as a danger to global economic stability.
Speaking at the annual Mansion House dinner in London, Bailey condemned Trump’s proposed 30% tariffs on imports from the EU and Mexico—on top of existing levies on Chinese goods—as deeply disruptive. He labeled the approach “economic sabotage,” arguing it would backfire and worsen inflation, which he described as the real threat.
Bailey says these tariffs are dangerous, noting that the US move may prompt a cycle of retaliation and protectionism. He added that the tariffs could slow trade and cause prices for ordinary goods to climb, reducing global economic activity.
Bailey said that higher tariffs could seriously risk the global economy and trade. He warned that such measures would ultimately harm the households they intended to support.
Bailey urges global leaders to choose collaboration over conflict
Bailey also pushed for renewed international cooperation between the US and China to solve outstanding trade and capital-flow imbalances.
He said that China and the US account for nearly 40% of the world’s current account imbalances. The US runs a large trade deficit, and China has a big surplus due to elevated savings and low domestic consumption.
Bailey said the two positions were untenable, adding that economic divisions reinforced political hostility between the sides.
However, Bailey opposed hitting back with tariffs and urged world leaders to work together and reform multilateral institutions, including the International Monetary Fund (IMF) and the World Trade Organization (WTO). And these institutions can better manage worldwide shifts in trading and financial systems, he said.
Bailey said that all parties must agree upon the rules of the process. He cautioned that allowing one dominant player to dictate the rules was not a formula for lasting stability.
He also said the US should explain how it reconciles its increasing domestic fiscal deficit with condemnation of its trade imbalance with the rest of the world. He also urged China to solve its low household consumption and excessive export dependence.
BOE warns stablecoins and digital currencies pose risks
The Bank of England has warned that the widespread use of digital currencies could intensify the severity of bank runs. In a recent Economic Letter, the central Bank noted that when confidence in a bank’s solvency collapses, a rush by depositors to withdraw funds could lead to a rapid loss of liquidity. This, in turn, would dry up other funding sources and render many of the Bank’s assets effectively worthless.
The Bank explained that banks, whose deposits and loans are no longer backed by gold but by short-term securities, could quickly become insolvent in such scenarios. It added that holders of other securities issued by the affected Bank would likely scramble to sell, triggering further panic in the financial markets.
Transitioning from global trade to financial innovation, Bailey’s speech instead raised fears of the rapid expansion of digital assets—particularly stablecoins—and lobbying for a central bank digital currency (CBDC) in Britain.
Stablecoins are cryptocurrencies designed to have a stable value, typically by being pegged to the value of the US dollar. They are becoming better known as a means of payment and investment, including in the United States, where there have been recent moves to write regulations underpinning their use.
However, Bailey is not convinced of their place in a secure and stable financial system in the future.
He also voiced his reservations over the proposed digital pound under consideration by the Bank of England and the HM Treasury. While some view a UK CBDC as an inevitability, Bailey said the case for innovation “has not yet been made.”
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