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Bundesbank President Jens Weidmann warned that an escalation of the trade dispute between the U.S. and China would be “poison” for global growth and have an especially acute impact on the U.S. itself.
A retreat into isolationism is the worst possible reaction to economic challenges and a trade war only produces losers, Weidmann, a leading candidate to become the next European Central Bank president, said in a speech at a banking congress in Hamburg Thursday.
“Bundesbank calculations show, for example, that the U.S. risks damaging its own economy with the introduction of new tariffs,” Weidmann said. “Higher prices diminish the spending power of U.S. consumers.”
The recent tit-for-tat imposition of tariffs between the world’s two largest economies has alarmed European policy makers at a time when the euro area has started to show signs of stabilization. The region, and particularly Germany, its biggest economy, would be damaged by a further escalation of the U.S.-China trade spat as they rely heavily on exports.
In the latest development, President Donald Trump’s administration on Wednesday moved to bar companies deemed a national security threat from selling to the U.S., and threatened to blacklist Huawei Technologies Co. from buying essential components.
At the same time, the White House appears to have stopped short of antagonizing its allies including the European Union and Japan. Trump is poised to delay a decision by up to six months to impose auto tariffs, according to a draft executive order seen by Bloomberg. The EU has said it will retaliate if duties are imposed.
Auto tariffs would “hit German carmakers hard,” Weidmann said.
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