Warning of Protectionism's Impact on Global Growth

VIENNA/FRANKFURT (Reuters) – Policymakers from the European Central Bank expressed concerns that the incoming U.S. administration's protectionist policies will hinder global growth, urging Europe to be better prepared than in 2018.

U.S. President-elect Donald Trump is set to raise trade barriers significantly, proposing a 10% universal tariff on all imports and a 60% tariff on Chinese imports to cut the U.S. trade deficit.

"What we do know is that the significant import duties spoken of could have detrimental ramifications for the world economy," stated Olli Rehn, Finnish central bank chief. He emphasized that a new trade war is unwelcome amidst existing geopolitical tensions, particularly among allies.

Austrian central bank head Robert Holzmann warned that these proposed tariffs will likely keep U.S. interest rates and inflation elevated, consequently putting upward pressure on prices globally.

Holzmann remarked, "He means what he has said and he will probably implement it faster than we expect." He noted that markets might anticipate sustained higher interest rates and inflation levels, leading to heightened pressure on both the dollar and euro zone inflation.

He indicated that if the dollar strengthens to near parity with the euro, it would notably affect import costs, particularly for energy, complicating the ECB’s goal of achieving a 2% inflation target and potentially delaying that process.

The rise in trade tensions began during Trump's first term, and Rehn cautioned Europe against failing to unify in response again. "If a trade war were to start, Europe must not be unprepared, as it was in 2018," he stated.

The ECB, as Rehn affirmed, must act as a stabilizing force in this challenging environment, ensuring economic and financial stability. “No one should doubt that we will shoulder this responsibility in full.”