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Tariffs a rounding error for US economy so far

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WASHINGTON, June 15 (Reuters) – US President Donald Trump’s new trade tariffs will lop at most a couple of tenths of a percentage point off US growth and add a similar amount to inflation, small fry for a $19 trillion economy that is experiencing its second longest economic expansion on record.

On Friday, Mr Trump imposed tariffs on $50 billion of imports from China, a move that came on top of hefty duties on steel and aluminum imports implemented at the start of June.

American consumers and businesses have taken the tariffs in their stride and the growing economy has brought in more workers, pushing unemployment down to levels not seen since the 1960s.

The costs have been manageable so far, with Commerce Secretary Wilbur Ross saying the metals tariff, for example, will add a few hundred dollars to the cost of a car.

Trade retaliation from China has so far been mainly confined to the farm sector, a small part of the overall US economy.

That could change if Mr Trump pushes ahead with more protectionist measures, possibly triggering a stock market sell-off that would damage business and consumer confidence, argues Michael Gapen, Barclays chief US economist. The Dow industrials fell nearly 1 percent on Friday.

The risks come at a time when the Federal Reserve has pushed interest rates into positive territory adjusted for inflation for the first time in over a decade, a move that will raise borrowing costs for consumers.

The president has already threatened to annul the North American Free Trade Agreement after a year of inconclusive talks with Canada and Mexico, and ordered an investigation into whether the US should impose tariffs on auto imports because he says they threaten American economic security.

“Anti-trade policies, particularly tariffs, act like a tax on consumers and businesses by raising the cost of trade. By creating uncertainty, they also weigh on asset valuations, which could weaken households’ ability to sustain spending and reduce the incentive for businesses to invest,” said Gapen from Barclays.

Mr Trump’s expansion of unilateral trade action goes well beyond recent actions from the United States. Before Mr Trump acted, the biggest measure was imposed in the 1980s when Washington forced Japan to limit exports of cars.

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