No retaliation against Donald Trump, but the application of the “Buy American” strategy. This is the vision of Christine Lagarde, president of the European Central Bank (ECB), expressed during her speech to the Economy Committee of the European Parliament.
The idea is to put on the table a greater purchase of certain goods produced by the United States, such as gas and defense instruments, to prevent the newly elected president from applying exorbitant duties to “punish” products imported from the European Union. No tug-of-war with the occupant of the White House, Lagarde underlined, but negotiations and talks to avoid even worse consequences for the already shaky EU economy.
Which products Europe can buy from the USA to avoid tariffs
“We could offer to buy certain products from the United States and thus signal that we are ready to sit at the negotiating table,” Lagarde had already declared in an interview with the Financial Times newspaper on November 28. On 4 December he reiterated the concept in his discussion with the MEPs of the Economy Committee in Brussels. Regarding the types of products that the EU could recover from Washington, Lagarde cited larger quantities of liquefied natural gas (LNG).
The second reference was to “defense equipment that we do not have the capacity to produce here in Europe and which could be purchased by Member States as part of a coherent EU approach”, the ECB president said. The idea of waging a trade war with Washington does not suit anyone, Lagarde argued, warning against an escalation.
The tariffs announced by Trump on foreign products
A few days before the US election results, Trump announced plans to impose 25% tariffs on goods from Mexico and Canada as one of his first acts after taking office in January. The tycoon has also foreseen additional taxes of 10% on products coming from China.
Trump already announces new tariffs (but saves Europe for now)
Brussels fears that the president elected from the ranks of the Republicans could also apply tariffs on goods coming from EU member states. During the election campaign he announced a tariff increase from 10 to 20% on all foreign imports. As underlined by Lagarde, the “fork” on possible tariffs is proof that Trump is open to negotiations.
Trump’s tariffs scare the European Union
The consequences of Donald Trump’s election are still under the scrutiny of central bankers. There are fears of an increase in inflation and interest rates in the euro area. The other hypothesis is that of a further slowdown in the Made in EU economy, due to the duties that would hit imported European products. Italy particularly fears punitive tariffs on agri-food products, given that the USA represents the main market for exports of goods such as pasta, ham, cheese and wine. However, there are also monetary policy experts who believe that a stronger US economy can also boost the European economy.
The prospects of the European economy
During her speech to the commission in Brussels, Lagarde also outlined a more general picture of the situation of the European economy. “The euro area recorded moderate growth in the first half of this year, after five quarters of stagnation. Real GDP growth was driven to a large extent by exports and public consumption,” he said.
On the other hand, private demand within the European bloc is weak “due to the high uncertainty of economic policy and the effects of the past monetary tightening”, underlined the president of the European Central Bank. Regarding the near future, Lagarde indicated that growth will be weaker in the short term, due to the slowdown in the services sector and “the continued contraction of the manufacturing sector”.
The possible cut in interest rates
In the long term, Lagarde remained optimistic, however, arguing that the euro area’s economic recovery should start to pick up steam. “Consumer spending should increase thanks to rising real incomes and investment should recover as the impact of past restrictive monetary policy fades,” Lagarde concluded. The ECB will meet on December 12, with economists almost unanimously expecting another interest rate cut of 25 basis points. Regarding these expectations, Lagarde simply stated that the bank will follow a data-based approach and will make decisions meeting after meeting.
