(Bloomberg) — The mural in the Federal Reserve Bank of Cleveland’s lobby depicts its place in the trenches of the U.S. industrial economy. So it’s fitting to ask Cleveland Fed President Loretta Mester what’s happening in the Rust Belt, where recent tariffs meant to help American manufacturers have backfired on some.
In an interview in London this week, Mester said her district is holding up pretty well. But she’s beginning to hear examples of how trade uncertainty is inhibiting investment plans:
- “Trade concerns certainly have been raised by a number of our business contacts. They’re concerned about where it’s going.”
- “When the president started talking about Mexican tariffs — that seemed to be a sea change in the face of a lot of the businesses that we talk do. They’ve been living with uncertainty about trade and tariffs for quite a while, but I think concerns were really raised at that point going forward.”
- “But when we talk to our firms, a majority are saying we haven’t really changed our planned investment, orders are staying up so we’re on track with our investment.”
- “A few firms now have told us that we may want to reassess our investment plans, and a couple of others have said that we were planning to borrow to expand and we’re rethinking that now. So we’re seeing it affect a few firms, but not a majority of our firms yet. So that’s another one of the things that we want to watch.”
- Worsening tariff concerns and slower global demand have the potential to hurt business and consumer sentiment, according to Mester. If that happens, a downshifting economy could warrant a Fed interest-rate cut. “But I don’t think we’re there yet,” she said. “I want to see more evidence.”
Charting the Trade War
German factory orders slumped in May in the latest sign that global trade uncertainty is turning Europe’s temporary slowdown into a more serious downturn.
Today’s Must Reads
- China’s tariff demands | Beijing is urging the U.S. to remove all tariffs on Chinese imports as a condition for reaching a deal or recently restarted talks will “go backward again.”
- Vietnam’s crackdown | The country’s leader is ordering tougher measures to prevent fraudulently mislabeled exports to ease frayed tensions with the Trump administration.
- South looks North | South American leaders are moving fast after scoring a trade deal with the EU to strike up talks with an even bigger market in the northern hemisphere.
- Sanction shenanigans | Ships vanishing from tracking screens, clandestine transfers on the high seas and fake destinations are ways being used to hide sanctioned trade from authorities.
- Samsung (KS:) blue | South Korea’s largest company reported profit more than halved after a global industry slump and trade tensions hammered demand for chips and smartphones.
- Asia outlook | Looking ahead to next week, Chinese trade figures will be in the spotlight
- Germany explained | Risks are firmly to the downside, raising QE chances later this year
- Buzz kill | Tariffs on whiskies between the U.S. and EU are poised to hurt spirits producers
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