ECB’s Lagarde: Trade War Could Be ‘A Little Net Inflationary in the Short Term’

28 November 2024

By David Barwick – FRANKFURT (Econostream) - European Central Bank President Christine Lagarde on Thursday said that the impact on Europe of a trade war could be slightly inflationary on balance in the short run.

In an interview with the FT that steered clear of current monetary policy, Lagarde appeared to advocate that Europe ‘offer to buy certain things from the United States and signal that we are prepared to sit at the table and see how we can work together.’

‘I think this is a better scenario than a pure retaliation strategy, which can lead to a tit-for-tat process where no one is really a winner’, she explained.

Items that Europe could purchase from the US included liquid natural gas and defence goods, she said.

As for the implications of a trade war for the ECB, ‘the actual net impact on inflation is uncertain at this point’ and ‘extremely difficult to assess’, she said.

‘If anything, maybe it’s a little net inflationary in the short term’, she said. ‘But you could argue both ways; it depends what the tariffs are, what they are applied on and over what period of time.’

European authorities had to ‘monitor carefully’ the possible rerouting to Europe of Chinese goods in response to US tariffs, she said.

Lagarde defended as ‘prescient’ her comment earlier this year that then-candidate for US president Donald Trump posed a threat to Europe. ‘Just look at the debates that we are having in many countries in Europe’, she said.

The deregulation likely to be pursued by Trump should not be assumed to lead to a financial crisis, she said. ‘I don’t see that’, she said. ‘We stand ready anyway.’