FRANKFURT (Reuters) – European Central Bank policymaker Joachim Nagel said tariffs promised by U.S. President-elect Donald Trump would hit international trade but could ultimately have a “modest effect” on inflation.
Trump made tariffs a key element of his pitch to voters, with some analysts worried that the Republican former president’s 2018-2019 trade war with China could turn out to be much worse.
Bundesbank President Nagel cited empirical studies showing that the impact of global integration on domestic prices is “economically small”.
“Although we can be fairly certain about the direction of this effect, the magnitude appears to be modest,” he said at a conference in Tokyo. “Accordingly, a significant increase in inflationary pressures would have to reduce global integration substantially. And, so far, we have not seen that.”
If geoeconomic fragmentation leads to higher inflationary pressures, the ECB and other central banks can tame it through higher interest rates, he added.
