Former treasury secretary Janet Yellen denounced president Donald Trump's tariffs and identified the reason she believes that he backed down from most of them.
The president's sweeping, so-called reciprocal tariffs went into effect Wednesday against global trading partners, but he pulled back most of them later that day as markets shuddered, and Yellen told CNN International that he paused the policy to avoid further damage to the U.S. economy.
"It caused highly leveraged hedge funds that hold U.S. Treasuries to begin to sell their holdings, and that's something that could really begin to trigger financial instability if there is massive sales of U.S. Treasuries," Yellen said. "So my understanding is that this is something that was an influence on president Trump in getting him to pause the reciprocal tariffs, and it's certainly something that should be of concern."
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Yellen, who served as treasury secretary under Joe Biden and was appointed Federal Reserve chair by Barack Obama and led the Council of Economic Advisers for Bill Clinton, sharply criticized Trump's economic policies in her first broadcast interview since leaving office.
"I'm afraid I could not give it a passing grade," Yellen said. "I'm sorry, I think policy has been, this is the worst self-inflicted wound that I have ever seen in an administration impose on a well-functioning economy."
CNN International's Bianna Golodryga said Yellen's criticism was significant.
"She did not hold back," Golodryga said. "She, I believe, made comments that may have impacted the market and led to an additional sell-off, because she said, as a result of the president's trade policies and economic policies the risk, in her view of a recession has gone up."
Yellen said the president's tariffs had already harmed the U.S. economy, even if they did not remain fully in effect for an entire day.
"It was a relief that the reciprocal tariffs that would have affected more than 180 countries, that a pause was placed on those, but still, even if they never go into effect, the U.S. and global economies have suffered a huge protectionist shock," Yellen said. "We have enormous, almost prohibitive tariffs on China, which is one of our most important sources of imports, very substantial tariffs still on Canada and Mexico, on the auto sector, and a 10-precent general tariff that applies to most countries around the world."
"Economists calculate that at this point, average tariff levels are now in the 20 [percent] to 25 percent range," she added. "At the beginning of the Trump administration were they just over 2 percent, so even if the reciprocal tariffs are abandoned, we have the highest average tariff rate since 1934, and this is going to raise the costs that households in the United States face. One credible estimate that came out this morning that takes into account yesterday's actions estimates as to the typical American household of the existing tariffs of about $4,000, which is enormous. It will have a significant impact on the price level and an adverse impact on the united states and on the global economy."
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