European Central Bank President Joachim Nagel said that the tariffs promised by US President-elect Donald Trump may upend international trade but may ultimately have a “minimal impact” on inflation.
Trump has made tariffs a major component of his speech to voters, in what some analysts fear will be a much worse repeat of the trade war that the former Republican president fought in 2018-2019 with China.
Nagel, head of the German Central Bank, cited empirical studies showing that the effect of global integration on domestic prices is “economically small.”
“While we can be quite certain about the direction of this effect, its magnitude appears small. Therefore, global integration would have to decline significantly to cause a significant rise in inflationary pressures. So far we have not seen this,” he told a conference in Tokyo.
He added that if geoeconomic fragmentation leads to greater inflationary pressures, the ECB and other central banks may be able to control them by raising interest rates.
