US tariffs risk hitting highest levels for 50 years, says ECB

The European Central Bank has warned that US tariffs are in danger of reaching their highest levels for half a century as its concerns mount about the impact of Donald Trump's trade policy on euro-zone growth.

The ECB said in its latest monthly bulletin on Thursday that "downside risks to the global economy have intensified" after the introduction of protectionist measures by the US and China last month and the threat of further retaliation.

“If all the threatened measures were to be implemented, the average US tariff rate would rise to levels not seen in the last 50 years,” the central bank said. “These developments constitute a serious risk to the outlook for global trade and activity in the short to medium term.”

The US introduced the first round of tariffs on imports from China on July 6th. Since then, the world’s two largest economies have unveiled tit-for-tat measures that cover $100 billion in bilateral trade. This includes the two countries’ announcement this week that they would impose 25 per cent tariffs on $16 billion of each other’s goods from August 23rd.

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The central bank indicated it was especially worried that a US investigation into whether it should impose tariffs on imports of cars and car parts would lead to new barriers to trade.

Conciliatory meeting

Mr Trump has threatened EU car manufacturers with such tariffs, although they are now on hold after he held a conciliatory meeting with Jean-Claude Juncker, European Commission president, last month.

"Should it result in protectionist measures, [it] could particularly affect Canada, Japan, Mexico and South Korea as well as key economies in the European Union, " the ECB said of the US investigation into the auto sector.

“Complex supply chains could further amplify the adverse effects of protectionism on the world economy.”

The ECB maintains that the risks to the outlook for growth remain balanced, despite the trade war. Mario Draghi, the bank's president, has said the main risk is that the trade tensions dent confidence, pushing companies to delay investment and the hiring of new workers.

Weakened

After an exceptionally strong 2017, euro-zone growth weakened from 0.7 per cent in the final quarter of last year to 0.4 per cent in the opening three months of 2018 and 0.3 per cent in the second quarter.

German manufacturing data suggest that exporters in the region’s economic powerhouse have started to suffer from the trade tensions.

Official figures published on Monday showed that the value of new orders placed with German manufacturers fell by 4 per cent between May and June – the biggest monthly fall since the beginning of 2017. – Copyright The Financial Times Limited 2018