FRANKFURT: U.S. President Donald Trump’s decision to impose a raft of tariffs on key trade partner endangers global financial stability, will weigh on growth and increase volatility in inflation, key ECB policymakers said on Thursday.
Among the closes U.S. allies, the EU was targeted with a 20% tariff, Japan with 24%, South Korea with 25% and Taiwan with 32%.
“The US administration’s decisions to impose tariffs endangers global economic stability,” Bundesbank President Joachim Nagel said in a statement.
“In the face of the challenges of our time, strong alliances and fewer trade barriers are needed,” Nagel said. “The U.S. is moving in a completely different direction.”
Luis de Guindos, the ECB’s Vice President meanwhile said such an environment requires extreme prudence from the ECB because the trade war could upset all expectations and make the outlook difficult to forecast.
Trade tensions could weaken the euro and increase import cost while extra spending on defence could boost overall demand and lift prices.
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“Geopolitical tensions could also lead to higher inflation owing to trade disruptions, rising commodity prices and energy costs,” he said.
But weaker demand for euro zone exports due to tariffs would weight on growth and lower price pressures, he argued.
Financial markets now see an 80% chance of another ECB rate cut in April and most investors project another two steps later in the year.
The Bundesbank’s Nagel argued that the trade barriers are an attack on the prosperity of all parties involved, reducing growth and increasing inflation.
“This is an economic policy mix that will see many losers, especially in the U.S.,” Nagel said.
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