European Central Bank President Christine Lagarde warned that an escalation of disputes over trade levies kicked off by US President Donald Trump may have a detrimental effect on the world economy.
“If we were to go to a real trade war where trade would be dampened significantly, that would have severe consequences,” she told the BBC. “For growth around the world and for prices around the world, but particularly in the United States.”
In the interview, Lagarde said that Trump’s “decisions, his counter decisions, are a cause for concern, are a cause for us to be extremely vigilant,” adding that this is “causing a level of uncertainty that we haven’t seen in a long time.”
#### Elevated uncertainty
Since his inauguration in January, the US president has enacted his tariff agenda in a piecemeal fashion, escalating global trade tensions step by step. These policies risk hitting economic growth hard and are already dampening activity via elevated uncertainty for companies, consumers and investors.
On Thursday, Trump threatened to impose a 200% tariff on wine, champagne and other alcoholic beverages from France and elsewhere in the European Union, if Brussels follows through with a tax on American whiskey exports. That measure was aimed at retaliating against Trump’s steel and aluminum tariffs that went into effect on Wednesday.
“Any trade war is going to hurt the global economy,” Lagarde said in an interview broadcast early on Friday “The initiator, the retaliator, the re-retaliator and so on and so forth — all of that is going to hurt growth at large. Everyone will suffer, this is a constant in history of trade. Some countries will be hurt more than others, some countries will see inflation move more than others, but everybody is to lose as a result of that.”
The ECB president also said that Brussels “had no choice” but to retaliate against the US, adding that given the lag between the announcement of measures and their start, there still is time for negotiations to take place.
She also rejected Trump’s suggestion that the EU was “formed to screw” the US.
“When Europe was formed it was largely formed at the instigation of the United States of America who wanted stability in our part of the world after the First and then the Second World War,” Lagarde said. “To argue that it was set up to screw the United States is not just bad language, but it is an abuse of history.”
Source: Bloomberg