A New U.S.-Europe Trade War? ECB Warns of Economic Shockwaves Ahead

The European Central Bank has raised concerns that protectionist policies from the incoming U.S. administration could stifle global economic growth, urging Europe to be better prepared than during the 2018 trade disputes. ECB officials highlighted these risks on Tuesday, as reported by Reuters.

U.S. President-elect Donald Trump pledged during his campaign to enforce significant trade barriers, including a universal 10% tariff on all imports and up to 60% on imports from China, aiming to curb the U.S. trade deficit.

ECB Governing Council member Olli Rehn, who also heads Finland’s central bank, warned at an event in London of the potential global impact of these tariffs. "A major trade war is the last thing we need, especially with today’s geopolitical tensions among allies," Rehn commented, cautioning that such measures could severely damage the global economy.

Robert Holzmann, head of Austria’s central bank, echoed these warnings, suggesting that Trump’s policies could elevate both interest rates and inflation in the U.S. while pushing up prices worldwide. Speaking in Vienna, Holzmann noted, “He’s likely to act on these promises swiftly, which could keep rates higher for longer,” adding that these pressures would also likely strengthen the U.S. dollar and elevate eurozone inflation.

Holzmann pointed out that a strengthening dollar could bring it close to parity with the euro, increasing import costs for energy and other goods in Europe. This would complicate the ECB’s efforts to maintain inflation near its 2% target and slow the current trend of falling inflation rates.

Trade frictions between the U.S. and Europe first escalated during Trump’s earlier presidency, but Europe struggled to form a unified response—a mistake it should avoid this time, Rehn emphasized.

Rehn assured that the ECB stands ready to support economic and financial stability in the face of these risks. "The ECB will fully embrace its role in maintaining stability during these challenging times," he stated.