Lagarde warns that Trump's trade war will slow economic growth and increase inflation.

BrusselsThe European Central Bank (ECB) warnings about the dangers of the trade war between the United States and the European Union are becoming increasingly clear. "The eurozone, which is very open to trade and deeply integrated into the international supply chain, particularly with the US, is particularly exposed to changes in trade policies," warned the head of the banking institution, Christine Lagarde, in an appearance before the European Parliament.

Specifically, according to ECB estimates, the 25% tariffs that the Donald Trump administration is threatening to apply to all European products imported by the US would cause economic growth to slow by 0.3 percentage points during this first year. "The brunt of the impact on economic growth would be concentrated in the first year after the increase in tariffs, and would ease over time, although it would have a persistent negative effect," added the French leader.

Furthermore, if the European Union continues applying the eye for an eye strategy and respond to the United States with similar rates, as it claims it intends to do, the European banking institution estimates that the figure would rise to half a percentage point. At this point, the ECB's economic forecasts They point out that the eurozone would grow by 0.9% in 2025 and 1.2% in 2026.

Another potential negative consequence of the tariff war that Lagarde points out is a spike in price increases. The ECB estimates that eurozone inflation this year will remain at 2.3%, very close to the institution's own target of 2%, but fears that Trump's trade policies will boost it by half a percentage point more. In any case, given that economic activity would slow, the banking institution believes that inflation would also decline in the medium term.

In this context, Lagarde has avoided giving any clues about what the ECB's governing council will decide at its meeting next April: whether to continue lowering interest rates or maintain them at their current levels of 2.5%. It should be remembered that raising the price of money is one of the main tools the ECB has at its disposal to stem inflation, because it leads to higher bank lending costs and, therefore, lower consumption. For this reason, the president of the entity is hiding behind the "uncertainty" in the economic forecasts to avoid advancing the path of interest rates, which will depend largely on the rates of price increases.

Lagarde's words come just the day after the ECB's counterpart in the United States, the Federal Reserve (the Fed), decided leave interest rates unchanged (between 4.25% and 4.5%). The arguments of the US banking institution, Jerome Powell, are similar to those of Lagarde: he justified the decision by the "uncertainty" caused by the effects of the tariffs that Trump is applying and threatening to expand.

Brussels postpones the entry into force of tariffs

The European Commission's determination to respond in kind to Trump remains intact, but they want to reach out to the White House until the last moment. In this regard, according to EU sources, Brussels will postpone part of the tariffs against the US from April 1 to April 13 to have greater room for negotiation with the Republican administration and, in this way, try to avoid a trade escalation between the two powers.

In fact, it is expected that US import tariffs on European cars will begin to be applied on April 2, and that the European Commission, if Washington does not back down, will take advantage of the situation to extend the tariffs on products it taxes from the US, including cars, until April 13. In other words, they will suddenly raise all tariffs against the US, unless Trump ends up backtracking.