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The EU must stand its ground in a potential trade war with the US and should retaliate if President Donald Trump imposes punitive tariffs on European goods, said Bank of Finland governor Olli Rehn.
“The last thing we need is a new trade war between allies but we need to take proportionate policy measures [in case the EU is going to be targeted by the US],” the former European economic commissioner said.
He told the Financial Times that “we cannot lie down” in the face of US threats — “even if it is friendly fire”.
Trump has warned that imports from Europe may be next in line after the US moved to impose 25 per cent tariffs on Canadian and Mexican imports and an additional 10 per cent levy against Chinese goods. The tariffs on Mexican and Canadian imports were paused for a month on Monday while China imposed tariffs on US energy export and farm equipment.
Rehn, one of the 26 members of the European Central Bank’s governing council, struck a more combative tone on the matter than the bank’s president Christine Lagarde. Late last year she told the FT that the EU should aim for a deal with Trump as a trade war was “in nobody’s interest”.
Rehn stressed that the “first goal” in European trade policy should be to find a “negotiated solution”, as an escalating trade conflict should be completely avoided at a time when a “brutal war” was being fought on Europe’s fringe in Ukraine.
But if negotiations failed, Europe needed to fight back.
“If you ask economists, the majority would say that it would be better for everybody not to retaliate. But this is not only [about] economics, this is mostly politics,” said Rehn.
“It’s better to prepare policy measures, consult member states and in case Europe will be concretely targeted by tariffs, then make it more specific,” he added, stressing that the bloc did not need to disclose potential retaliatory moves in advance.
The EU can enter any conflict with “self-confidence”, he said, pointing to the fact that its single market, which has a population of about 450mn, was “interesting to any trading partner”. The EU has also expanded its trade network, most recently with four South American countries that belong to the Mercosur group.
Potential US attempts to strike unilateral deals with individual EU countries were likely to fail, Rehn said.
“The European Commission has strong prerogatives in trade policy, which is a safeguard for European unity,” the veteran policymaker added.
Europe faced low growth and a large exposure to American trade — the US is the largest market for EU goods and the second biggest source of imports to the EU after China — but it still had little reason to be cowed by the prospect of a trade war with its most important ally.
“Tariffs will hit most American consumers and will have an inflationary effect on the US economy,” Rehn said, adding that the dollar’s rise after the tariff announcements had made it more difficult to lower the US trade deficit as the country’s imports become cheaper while its exports rise in value.
While a trade war would be expected to dent growth in Europe, its effects on consumer prices were unclear, the Finnish central banker said.
He also raised doubts over the argument that tariffs were a negotiation tool to advance Trump’s other policy goals.
“There seems to be a different kind of rationality [in Washington] than to what we are used to in international relations,” he said. “As President Trump has himself stated, he’s a ‘tariff man’ and it seems to be a very ideological issue for him and his administration.”
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