In the era of Trump, a European official does not rule out a trade war with America

Senior European Central Bank official Isabel Schnabel said that a trade war with the United States is “very likely” under Donald Trump’s presidency, warning that this would have negative consequences for movement and prices.
This came in an interview with Schnabel, a member of the bank’s Executive Board, on the YouTube channel of the German financial consulting website Finanztip.
She pointed out that tariffs “were central to the statements of Donald Trump,” who will be inaugurated as president today, Monday, and therefore “it is very likely that a trade war will break out.”

Trump imposes tariffs

Trump has pledged to impose 25% tariffs on goods imported from Mexico and Canada, the United States’ two largest trading partners, as soon as he takes office, to punish his country’s neighbors for what he sees as a failure on their part to stem the flow of drugs and irregular migrants.

Trump also threatened to impose 10% tariffs on Chinese products, in addition to existing tariffs dating back to his first term.

Also, Trump threatened to impose tariffs on the euro zone, especially Germany, which has the highest trade surplus with the United States.

Prices rise in Europe

As for the euro zone, raising tariffs could lead to higher prices, especially if Europe responds with retaliatory measures, which will lead to “an increase in import prices,” Schnabel stressed.

The banking official warned that the current state of uncertainty constitutes “poison for the economy” in the short term, as it leads to a contraction in consumption and investment.

She said that tariffs generally lead to a decline in global well-being.

She added that while globalization had brought great wealth to Europe, “we may now have to prepare to see at least some of these gains reversed.”

Lowering interest rates in Europe

Despite the risky environment, Schnabel confirmed that the ECB is on the “right track” to achieve the 2% inflation target, which would allow the bank to continue cutting interest rates at the end of January.

After the four cuts decided by the bank since June to reduce the key interest rate from 4% to 3%, Schnabel considered that the European Central Bank is approaching “the point at which we must carefully consider how far we can go.”