European Central Bank President Christine Lagarde is urging the European Union to negotiate with the United States to avoid a trade war. It proposes a strategy for purchasing liquefied natural gas and American defense equipment in order to defuse tensions.
Christine Lagarde pleads for a pragmatic strategy
Christine Lagarde sent a clear warning: the European Union must avoid a trade war with the United States at all costsunder penalty of suffering serious economic consequences. In an interview with Financial Timesthe president of the European Central Bank defended an approach of negotiation and compromise in the face of threats from President-elect Donald Trump to heavily tax European imports.
According to Ms. Lagarde, “ no one wins from a strategy of pure and simple retaliation “. To defuse tensions, she suggests that the EU set up a “ checkbook strategy “. This approach would notably consist of increasing purchases of liquefied natural gas (LNG) and American defense equipment not produced on the Old Continent. These gestures could appease Washington and reduce the risks of tariff escalation.
A global risk for the global economy
Donald Trump, who compared the EU to a “mini China” during his campaign, criticizes Europe for its massive trade surpluses with the United States. He has already announced protectionist measures against Canada, Mexico and China, increasing customs duties on their products from 10 to 25%.
Christine Lagarde also spoke of the economic consequences of a trade war “ in the broad sense “. According to her, such a conflict would result in a “ global reduction in GDP ”, affecting not only Europe and the United States, but also the global economy as a whole.
On the European level, it remains cautious about the possible effects on inflation. If customs taxes were to cause an increase in import prices, the impact on inflation remains “ uncertain » and could only be “ slightly positive in the short term “. Such a situation could, however, complicate the ECB's efforts to stabilize prices in an already fragile economic context.
