Chief Economist of the European Central Bank ECB Philip Lane warns the next president of the United States Donald Trump’s about the effects of the planned tariffs on the euro area in very few words.
“The fragmentation of global trade due to protectionist measures is causing significant production losses for everyone,” he said in a speech at the American Economic Association event in San Francisco on Friday night.
“A trade war undermines everyone’s well-being and does not eliminate interdependence,” Lane continued.
According to the ECB’s chief economist, this issue is important for central banks because the fragmentation of trade causes larger supply shocks more often than before during the transition period. In the longer term, it also increases market volatility, i.e. volatility, and accelerates inflation.
Lane has commented on Trump’s possible tariffs before. He has emphasized that it matters what kind of tariffs are imposed, how long they last, whether there will be countermeasures, whether the world trade system will fragment, whether the dollar will strengthen and how far the situation would escalate.
A recent survey of economists by the Financial Times according to the global trade war possibly caused by Trump’s tariffs, along with political paralysis, is the biggest risk to the euro area economy this year. According to several economists, the mere threat of tariffs weakens production in Europe even before they have actually even been imposed.
The European Commission has previously estimated that under a 10 percent general tariff, exports to the United States could drop by almost a third. ABN Amro -bank’s analysts recently calculated that the impact of Trump’s probable tariffs on exports would slow down growth by 1.5 percentage points over three years in Europe.
Analysts emphasize that there is also a scenario where the eurozone could benefit from Trump’s tariffs. In that case, the EU would succeed in negotiating an exemption from customs duties in its territory.