The President of the European Central Bank (ECB) has urged European leaders “not to retaliate, but to negotiate” with Donald Trump if he imposes tariffs on goods from the continent.
Christine Lagarde said that a global trade war was “in nobody’s interest” and would likely lead to a “global reduction of GDP”.
Trump threatened to impose a blanket tariff of at least 10 per cent on all foreign imports during the election campaign, rising to 60 per cent for imports from China.
Earlier this week, he said he would impose a 25 per cent tariff on goods from Mexico and China on the very first day of his presidency.
Speaking to the Financial Times, Lagarde queried whether Trump’s economic policies would have the effect he was hoping for. “How do you make America great again if global demand is falling?”
But rather than simply imposing retaliatory tariffs, she suggested that Europe could adopt a “cheque-book strategy”, in which it would agree to buy more of certain products from the US.
European officials are reportedly considering buying more agricultural products from the US as well as increasing weapons and liquefied natural gas purchases.
“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,” she said.
Lagarde urged European leaders to see Trump’s second presidency as a chance to push on with the reforms laid out in Mario Draghi’s recent report on European competitiveness.
“It is up to us now — the Europeans — to transform that threat attitude of ours into a challenge that we have to respond to…Europe is lagging behind. But I wouldn’t say that Europe cannot catch up,” she said.