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Janet Yellen has warned that Donald Trump’s tariffs will have a “tremendously adverse” impact on the US economy as they “hobble” companies that rely on critical minerals supplies from China.
Yellen, who served as Treasury secretary under former president Joe Biden and was previously the Federal Reserve chair, said Trump’s wide-ranging levies on trading partners risked tipping the US into recession.
“[The tariff strategy] will have tremendously adverse consequences for the United States, for consumers, for the competitiveness of firms that rely on imported inputs,” Yellen told the Financial Times, noting that about 40 per cent of goods imported into the country were inputs for domestic production.
She added: “I’m not yet ready to say that I’m forecasting a recession, but certainly the odds have gone way up.”
Yellen’s comments came as data released this week pointed to a boom in imports as companies rushed to stockpile goods, which pushed GDP into contraction territory in the first quarter.
Spending and production across the $29tn US economy has broadly remained robust, but surveys released in recent weeks have shown consumer and business sentiment darkening markedly.
Trump announced steep “reciprocal” tariffs against many countries on April 2, triggering severe market ructions. He later paused most for 90 days, but 145 per cent levies on most Chinese goods have remained in place.
Yellen, who spoke after joining the advisory board of Angeleno Group, a private equity firm focused on low-carbon technology, said the tariffs could be particularly problematic for the US clean energy sector.
“We’re highly dependent on China for most of the critical minerals that go into clean energy technologies, batteries and the like,” she said. “And by putting enormous tariffs on them, I think we potentially hobble industries that could have a chance.”
She contrasted the approach with what she argued was a more judicious approach to trade protection under the Biden administration, which imposed tariffs of 50 per cent on some Chinese solar products and 100 per cent on Chinese electric cars.
“I was supportive of very limited tariffs that were well targeted . . . that would give firms like these solar cell manufacturers some breathing space to scale up and become competitive,” she said.
“But when you’ve decided you want to support, say, solar cell manufacturing, you have to be extremely careful not to put yet larger tariffs on the inputs that go into this.”
