ECB's Knot Warns of Potential Global Trade War

In a recent interview with Dutch newspaper De Volkskrant, Klaas Knot, a member of the European Central Bank (ECB) Governing Council and President of De Nederlandsche Bank (DNB), voiced significant concerns regarding the escalating tensions between the United States and China. Knot highlighted the potential for a global trade war, emphasizing the risks it poses to the global economy.

Impact of US Tariffs on China

Knot expressed particular concern over the possibility of the United States imposing tariffs on China. Such actions, he warned, could lead to an influx of cheap Chinese goods into Europe, potentially exporting deflation to the region. This scenario could have far-reaching implications for the European economy, challenging the ECB's efforts to maintain price stability.

Rising Wage Demands and Inflation Targets

Additionally, the ECB representative addressed the issue of rising wage demands. Knot pointed out that wage increases of 7% are incompatible with the ECB's 2% inflation target. This discrepancy poses a significant challenge for the ECB as it seeks to navigate the complex dynamics of the global economy while striving to achieve its inflation objectives.