European Central Bank President Christine Lagarde said on Wednesday U.S. tariffs could have a disinflationary impact in Europe if there are no European countermeasures but they prompt China to reroute exports to the region.
U.S. President Donald Trump ratcheted up tariffs on Chinese imports this month, raising them effectively to 145% when levies imposed earlier this year are taken into account.
While this could push up inflation in the United States, it could have the opposite effect in Europe, Lagarde said in a live interview with the Washington Post, although the net inflation outcome was still uncertain given the variety of factors at play.
“China will have overcapacity and will want to reroute its exports somewhere, possibly to Europe, and that would have a dampening impact on prices,” Lagarde said.
However, Lagarde added that this would be counterbalanced in part by the likely inflationary impact of an expected German fiscal boost after the country’s parliament passed a plan last month to hugely increase spending on defence and infrastructure.
Lagarde said she could not exclude the possibility of revisiting the ECB’s growth forecasts when it makes its next projection in June in the light of Trump’s tariffs.
Asked if she was reassured that Trump was backing off from threats to fire Federal Reserve Chair Jerome Powell, she reiterated her respect for Powell.
“Whenever there has been political interference and whenever central bank chair or presidents have lost the independence, it has been followed by declining growth, increased inflation,” Lagarde added.
(Reporting by Sarah Marsh)
