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Europe must “be prepared” and anticipate new US President Donald Trump’s potential trade tariffs, European Central Bank President Christine Lagarde told CNBC on Wednesday.
She said that the fact that Trump had not imposed blanket tariffs on the first day of his presidency was a “very smart approach … because blanket tariffs are not necessarily giving the results that you expect.”
As such, she said she expects Trump’s tariffs to be “more selective, focused.”
“What we have to do here in Europe is to be prepared, and anticipate what will happen in order to respond,” he told CNBC’s Karen Tso at the World Economic Forum in Davos.
Trump has threatened to impose tariffs on goods imported into the United States from the EU and has repeated those statements since his inauguration on Monday, telling reporters that the EU has been “very, very bad for us. tariffs “.
Valdis Dombrovskis, the European Union’s economic commissioner, told CNBC on Wednesday that if the bloc’s economic interests needed to be defended, the EU would. answer “proportionately”.
There is widespread debate about the impact of potential US tariffs. Economists said the duties could hurt the economy they are imposed on, leading to fewer goods being exported to the United States.
Trump said the tariffs would protect US businesses and support his country’s economy.
The ECB’s Lagarde on Wednesday said the substitution theory – lowering imports from Europe in an effort to “boost” US manufacturing – was “questionable because the US economy”. […] it’s almost in heat at the moment.”
“If you look at the [U.S.] the labor market, you have a very low unemployment rate. If you look at the capacity, it is already almost at full capacity. So the idea that you can manufacture what you no longer import, or that you import at much higher prices, is … that’s something that will take some time,” he said.
Importers also won’t be able to run low-margin businesses for an extended period of time, meaning eventually “the money goes to the consumer,” Lagarde added.
“A way to respond” to US trade policy
Lagarde also called for the removal of barriers to trade in Europe, noting that despite the aspirations to create a single market, there are still obstacles that sometimes prevent goods and services from traveling without impairment.
“I think that’s one of the points that Ursula von der Leyen, the president of the European Commission, made yesterday – let’s make sure we remove the barriers over which we have control,” Lagarde said, without divulging details.
Lagarde said she hoped this would happen in the coming weeks, describing it as “a way to respond to the change in trade policy in the United States.”
“Be strong at home and make sure that you make transactions, that you sell and buy at home, that you save at home and that you invest at home. Not to mention that we want to move into a protectionist approach, because what the lowest barriers have taught us. is that trade is really very useful,” added Lagarde.
— CNBC’s Katrina Bishop contributed to this report.
