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Headlines

ECB's Knot on US tariffs: a trade war only has losers

Published by Global Banking and Finance Review

Posted on February 2, 2025

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AMSTERDAM - Klaas Knot, a member of the European Central Bank's governing council, said on Sunday that he expects new tariffs imposed by U.S. President Donald Trump will lead to higher inflation and interest rates in the United States that will likely weaken the euro.

Knot, who is also the Netherlands' Central Bank President, said in an interview on Dutch television program Buitenhof that trade wars harm all sides, and the best reaction to tariffs in economic terms is to do nothing - but that he expect countries will retaliate out of political considerations.

"Europe will not want to be pushed around. We are also a powerful trade bloc with 400 million consumers," he said.

Trump announced tariffs on U.S. allies Canada and Mexico, and on China, on Saturday.

Knot said it was inevitable that U.S. prices will rise due to such tariffs, leading to higher prices for U.S. consumers, and higher interest rates to control the resulting inflation.

"We’re already seeing that reflected in long-term interest rates," he said. "Some of that will spill over into Europe."

Knot said he had endorsed the ECB's rate cut earlier this week and he believes inflation in Europe is headed back toward the central bank's 2% target.

(Reporting by Toby Sterling;Editing by Elaine Hardcastle)