VIENNA/FRANKFURT (Reuters) -Protectionist policies from the incoming U.S. administration will hamper global growth and Europe must be better prepared than in 2018, European Central Bank policymakers warned on Tuesday.
U.S. President-elect Donald Trump has promised a big increase in trade barriers, including a 10% universal tariff on imports from all foreign countries and a 60% tariff on imports from China, with the aim of reducing the U.S. trade deficit.
“What we do know is that the significant import duties spoken of could have detrimental ramifications for the world economy,” Finnish central bank chief Olli Rehn said in London. “A new trade war is the last thing we need amid today’s geopolitical rivalries – especially among allies.”
Austrian central bank chief Robert Holzmann warned that these policies, if implemented, will keep U.S. interest rates and inflation higher, also putting upward pressure on prices elsewhere.
“He means what he has said and he will probably implement it faster than we expect. If so, what do markets expect? … That interest rates will stay higher and that inflation will also be higher,” Holzmann said in Vienna, adding that would put upward pressure on the dollar and euro zone inflation.
Holzmann argued that if the dollar firms and approaches parity against the euro, that would have a measurable impact on import costs, especially for energy, making it harder for the ECB to get to its 2% inflation target and potentially delaying the process.
Trade tensions started to increase between the U.S. and Europe during Trump’s first presidency and Europe struggled to find a joint response, a mistake it should not make this time, Rehn said.
“If a trade war were to start, Europe must not be unprepared, as it was in 2018,” Rehn added.
“The (ECB) must, within its mandate, act as an anchor for economic and financial stability in this landscape of great challenges,” Rehn said. “No one should doubt that we will shoulder this responsibility in full.”
(Reporting by Francois Murphy and Balazs Koranyi; Editing by Andrew Heavens)
