Trade tariffs introduced by U.S. President Donald Trump could generate significant economic uncertainty, although their effect on inflation remains ambiguous, according to Luis de Guindos, Vice President of the European Central Bank (ECB).
Trump's proposed 25% tariffs on all steel and aluminum imports into the United States, in addition to existing metals duties, represent a major escalation of trade tensions. De Guindos, in an interview with Spanish broadcaster TVE, emphasized that while the tariffs pose geopolitical risks, the policy from the new U.S. administration is creating an atmosphere of considerable uncertainty for the global economy.
De Guindos explained that the implementation of such tariffs could create what is known as a “supply shock,” which could have profound effects on global economic growth. The tariffs would disrupt established trade flows and supply chains, particularly in industries reliant on steel and aluminum.
However, when it comes to inflation, the impact is less straightforward. De Guindos noted that while tariffs may initially seem inflationary, their ultimate effect on inflation could be muted by broader economic conditions. He pointed out that if tariffs lead to a decrease in economic activity, this could, in turn, ease inflationary pressures.
Despite the potential risks, de Guindos emphasized the importance of avoiding a full-blown trade war. He urged caution in Europe’s response to the U.S. tariffs, noting that initial announcements often do not result in immediate or complete implementation.
Regarding the broader economic picture, de Guindos stated that inflation in the eurozone was gradually aligning with the ECB’s target of 2%, signaling economic stabilization. As for future monetary policy, he emphasized that decisions would be made on a case-by-case basis during each ECB meeting, taking into account the latest economic developments and market conditions.
Preliminary data published by Eurostat last week showed that the eurozone annual inflation unexpectedly accelerated in January and reached a 7-month high. Meanwhile, core inflation remained unchanged again, while economists had expected a slight decline.
According to the report, the consumer price index rose by 2.5% per year after increasing by 2.4% per year in December. Consensus estimates suggested an increase of 2.4% per annum. Eurostat reported that the core consumer price index - excluding energy, food, alcohol & tobacco - rose by 2.7% per year, as in December. Consensus estimates suggested an increase of 2.6%.