Christine Lagarde has urged Europe’s political leaders to co-operate with Donald Trump over tariffs and purchase extra merchandise made within the US, warning that an acrimonious commerce battle dangers wiping out international financial progress.
The European Central Financial institution chief mentioned in her first interview since Trump received his second presidential time period that the EU wanted “not to retaliate, but to negotiate” with a president-elect who has threatened a blanket tariff of as much as 20 per cent on all non-Chinese language US imports.
Lagarde additionally cautioned {that a} “trade war at large” was “in nobody’s interest” and would result in “a global reduction of GDP”. Taking goal at Trump’s claims that he might “make America great again”, the ECB chief mentioned: “How do you make America great again if global demand is falling?”
Trump’s victory has raised considerations amongst nationwide governments and officers in Brussels, who worry tariffs would wipe out the EU’s massive commerce surplus with the US and spur the area’s producers to shift manufacturing there.
Lagarde mentioned that Europe ought to take care of a second Trump time period with a “cheque-book strategy” wherein it provided “to buy certain things from the United States”, reminiscent of liquefied pure fuel and defence tools. “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,” the ECB president mentioned.
The European Fee, which runs commerce coverage for the EU’s 27 member states, continues to be contemplating how it will reply.
Growing purchases of US exports, together with agricultural merchandise, in addition to LNG and weapons, are among the many choices into account, in response to officers concerned within the preparations. The EU can also be getting ready to permit US firms to take part in initiatives to help joint army procurement with EU taxpayer cash, and to align extra carefully with the White Home on its commerce and geopolitical insurance policies in direction of China.
Lagarde has been unusually outspoken for a central banker in voicing her opinion on the US president-elect, saying earlier this 12 months {that a} second Trump time period was “clearly a threat” for Europe. She instructed the Monetary Instances this week that the comment was “prescient”.
“Just look at the debates that we are having in many countries in Europe,” she mentioned.
Her counterpart on the Federal Reserve, Jay Powell, has rigorously averted opining on Trump, regardless of him tweeting throughout his first time period that the US central financial institution chair was probably a “bigger enemy” to the American economic system than China.
Lagarde mentioned her pondering on find out how to deal with a second Trump time period had “changed a bit” over the course of 2024, saying it was additionally Europe’s duty to make use of the US election consequence to spur much-needed modifications to an economic system that was struggling to maintain up with its rivals.
“It is up to us now — the Europeans — to transform that threat attitude of ours into a challenge that we have to respond to,” the ECB president mentioned. Whereas she disputed claims that Europe was embroiled in a disaster, the present scenario was “a big awakening”.
Lagarde agreed together with her predecessor Mario Draghi’s analysis that the EU wanted to take drastic motion to regain its financial competitiveness, after struggling to maintain up with the US over latest a long time.
“Europe is lagging behind. But I wouldn’t say that Europe cannot catch up,” she mentioned.
Economists imagine Trump’s risk to impose important tariffs on Chinese language exports to the US may lead Beijing’s producers to flood European markets with their merchandise, presenting an extra risk to home competitiveness.
The dumping of low cost merchandise would exacerbate tensions between the EU and China, considered one of its foremost commerce companions, and place additional strain on a area beset by financial stagnation for the reason that Covid-19 pandemic struck.
The ECB president mentioned policymakers wanted to observe such a “rerouting scenario” for Chinese language items rigorously.
Throughout his marketing campaign, the president-elect threatened to impose a 60 per cent tariff on all Chinese language imports.
On Monday night, Trump mentioned he would impose a ten per cent levy on Beijing from his first day in workplace, in retaliation for China doing too little to crack down on the manufacturing of drugs used to supply fentanyl.
Lagarde talked to the FT earlier on Monday, forward of Trump’s remarks.
She known as on Europe to chop by way of Trump’s marketing campaign rhetoric and to give attention to the small print of his proposals thus far, arguing it was “interesting” that he had recommended introducing tariffs of between 10 and 20 per cent on non-Chinese language imports.
“The fact that you put out a range means that you are open to discussion,” she mentioned, including that this created the chance to “sit at the table and see how we can work together”.
Whereas Lagarde mentioned it was too early to evaluate the implications of US tariffs on inflation within the Eurozone, total, she mentioned that “if anything”, the impact was “maybe . . . a little net inflationary in the short term”, pointing to a possible discount in financial exercise and swings in overseas trade charges. “But you could argue both ways,” she added. “It depends what the tariffs are, what they are applied on and over what period of time.”
For Europe, the incoming Trump administration’s stance on commerce and transatlantic co-operation have been an “accelerator of a reset that we need”, Lagarde mentioned.
She singled out the long-standing thought to create a single marketplace for capital in Europe — the so-called Capital Markets Union — and urged the EU to “move quickly” with it. The concept was first proposed by the Juncker Fee in 2014, however thus far has been held up by home opposition in most of the EU27 member states. “I have not seen such a level of understanding and excitement as we have now,” mentioned Lagarde.
She known as for capital markets supervision to maneuver from the EU’s 27 nationwide authorities to the European Securities and Markets Authority. “We should have one single supervisor” that “operates like the Securities and Exchange Commission”, Lagarde mentioned, referring to the US’s capital markets watchdog.
Requested concerning the view that Europe’s economic system was so outdated and ossified that the continent was turning right into a “museum”, Lagarde quipped that “it’s a pretty attractive museum if you ask me”.
She pointed to a “huge amount of innovation” throughout the continent, naming the Dutch farming sector for instance: “Did you know that the Netherlands is the second-largest farming product exporter in the world? Look at the size of the country!”
Confronted with a typical criticism that Dutch tomatoes are missing in style, she responded: “But you eat them.”
Further reporting by Henry Foy in Brussels
