Trade tensions triggered by Donald Trump’s tariff policies could “shipwreck” the global economy and are having a chilling effect on growth, the governor of the Bank of England has warned.

Mark Carney said on Tuesday that policymakers were underestimating the impact of the US president’s trade spat with China, Mexico and the European Union. He added that trade tensions had increased the “downside risks” for a UK economy already grappling with Brexit uncertainty.

Carney said: “The more hostile and uncertain trading environment is coinciding with sharp slowdowns in global trade, manufacturing, industrial production and capital goods orders. As a consequence, the quality of global growth has deteriorated. Across the G7, the growth rate of business investment has almost halved since its peak in late 2017, leaving the global expansion more reliant on consumer spending and reducing its resilience.”

Carney, a Canadian national who also holds Irish and British citizenship, leaves his post in January and could be a candidate to replace Christine Lagarde as head of the International Monetary Fund. He said that the uncertainty causing tension in the global economy mimicked the experience of British businesses and consumers in the UK after more than two years of Brexit negotiations.

“Business confidence has fallen across the G7 to its lowest level in five years, with sentiment among manufacturers particularly weak. Households have also become gloomier about the general economic outlook, though they remain relatively upbeat about their own financial situation, likely reflecting robust labour markets. This is a similar pattern to that which emerged in the UK following the referendum,” he said.

In a speech entitled “Sea change”, Carney pointedly referred to Shakespeare’s Tempest and the threat of a shipwrecked economy. Speaking to representatives of local authorities in England and Wales, he said: “Whether current trade tensions shipwreck the global economy or prove to be a tempest in a teacup will have an important influence on the outlook for growth and inflation in the UK.”

The warning came as the US president threatened fresh tariffs on $4bn (£3.2bn) worth of European products including scotch whisky, ham and olives in a bid to force the European Union to back down in a long-running row over aircraft subsidies.

Trump has agreed to restart talks with China over tit-for-tat import duties following talks with President Xi Jinping at the G20 conference in Japan last week. The US has imposed tariffs on $200bn worth of Chinese goods and Beijing has retaliated with duties on US products worth $60bn.

However, as Carney noted in his speech, Trump has called off talks with Beijing in recent months, only to reinstate them weeks later.

“The latest actions raise the possibility that trade tensions could be far more pervasive, persistent and damaging than previously expected. The rationales for action are broadening. Initially motivated by concerns over bilateral trade imbalances, trade measures are now being taken in response to issues ranging from immigration to intellectual property protection to control of the technologies underpinning the fourth industrial revolution,” he said.

“The longer current tensions persist, the greater the risk that protectionism becomes the norm. Once raised, tariffs are usually slow to be lowered. Consider that half a century ago the US imposed tariffs on light trucks due to a dispute over chicken exports to Europe. While the chickens were soon forgotten, the truck tariffs remain in place.”

Unlike other central bank governors, Carney has refused to signal an easing of monetary policy, saying that it is likely a no-deal Brexit will force Threadneedle Street to cut rates to prevent a recession, but the decision is not inevitable.

But he said there was strong pressure on central banks in economies that are already affected by slowing growth to cut interest rates his year. “In some jurisdictions, the impact may warrant a near term policy response as insurance to maintain the expansion,” he said.

The European Central Bank president, Mario Draghi, has already signalled that falling inflation and growth in the eurozone will warrant extra support. He is expected to say at the ECB’s next meeting later this month that he will keep interest rates at historic lows for longer than previously signalled in an effort to encourage borrowing and investment.

In the US, the Federal Reserve boss, Jerome Powell, has faced a barrage of criticism from White House employees, including trade adviser Peter Navarro, for refusing to cut rates to bolster growth. (Agency report)

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