European Central Bank official: Trade war with US ‘very likely’
A trade war with the United States is very likely under Donald Trump’s presidency, senior European Central Bank official Isabel Schnabel said Sunday, warning that it would have negative consequences for movement and prices.
“Taxes were central to the statements of Donald Trump,” who will be inaugurated as president on Monday, and “a trade war is very likely,” Schnabel, a member of the bank’s executive board, said in an interview.
Trump has vowed to impose a 25% tariff on goods imported from Mexico and Canada, the United States’ two largest trading partners, as soon as he takes office on Monday, to punish his neighbors for what he sees as their failure to stop the flow of drugs and illegal immigrants.
Trump also threatened to impose 10% tariffs on Chinese products, in addition to existing tariffs dating back to his first term.
Trump also threatened to impose tariffs on the Eurozone, especially Germany, which has the highest trade surplus with the United States.
For the Eurozone, raising tariffs could lead to higher prices, especially if Europe retaliates, which would increase import prices, according to Schnabel.
The banking official warned that the current state of uncertainty is, in the short term, poison for the economy, leading to a contraction in consumption and investment.
She said that tariffs generally lead to a decline in global prosperity.
She added that while globalization has brought great wealth to Europe, “we may now have to prepare to see at least some of these gains reversed.”
Despite the risky environment, Schnabel stressed that the European Central Bank is on the right track to achieve its 2 percent inflation target, which would allow the bank to continue cutting interest rates at the end of January.
After the four cuts the bank has made since June to lower its key interest rate from 4% to 3%, Schnabel said the European Central Bank was approaching the point where we have to carefully consider how far we can go.
