Janet Yellen sizes up the US impact of a hard Brexit
HOUSTON — If the United Kingdom crashes out of the European Union without a deal, the United States will not be able to avoid the economic impact, former Federal Reserve Chair Janet Yellen said Tuesday.
"From the U.S. point of view," Yellen said at the Institute for Supply Management (ISM) conference in Houston, "the U.K. is, I believe, our fourth-largest export destination. Disruption in the U.K. is likely to undermine U.S. exports to the U.K. The pound is likely to depreciate if there is a hard Brexit, which, of course, also makes it more difficult to profitably export."
U.S. companies using the U.K. as a base to supply the European Union will also struggle with this. The impact stateside would not be as significant as anything felt in the U.K., but Yellen said the reverberations would be still be "significant."
These remarks came the same day as U.K. Prime Minister Theresa May was meeting with multiple European leaders and the day before May has planned to meet with the European Council to ask for another extension until June 30. The current deadline to reach a deal is Friday April 12.
Hours before Yellen took the stage in Houston, the Office of the United States Trade Representative released a set of proposed tariffs against the European Union that would impact $11 billion in goods coming from EU counties, and while Yellen did not discuss this latest development, she did talk about the current trade war between the U.S. and China.
The overall U.S. economy remains relatively strong in the face of tariffs, Yellen said, but there are certain sectors that have suffered as a result of the trade barriers imposed by Trump.
"I am very concerned," she said. "I think we will reach a deal with China. We risk, if that doesn't happen, an escalation in tariffs to 25% level on a broad range ... of goods."
The cost of the tariffs so far have largely been passed on to consumers, she said.
"Estimates say, on a monthly basis, U.S. consumers are paying in the form of taxes or tariffs about $3 billion a month because of this set of tariffs," she said.
Efficiency losses add up to about another $1.5 billion a month. The sectors that are affected are also buying less and importing less. Then there is the retaliation, which has hit the agriculture sector especially hard, she said.
Despite all of this, Yellen said she does not expect a big economic downturn in the near future.
"I don't anticipate a recession coming," she said, "but of course at some point, there will be."
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