Germany's Central-Bank Chief Warns of U.S.-Europe Trade-War Dangers
17 October 2019 - 7:02AM
Dow Jones News
By Michael S. Derby
Deutsche Bundesbank leader Jens Weidmann said Wednesday that
rising trade tensions around the world have the potential to slow
growth markedly, in comments that also expressed continuing concern
with the European Central Bank's stimulus efforts.
"A full-blown trade war between the United States and the
European Union could cost both sides dearly," Mr. Weidmann said in
a speech in New York at the Council on Foreign Relations.
"The potential adverse effects might be considerably larger than
in the case of the current trade spat with China," and even there,
things are looking worrisome. Mr. Weidmann said in the current
China-U.S. squabble, "the measures that have been adopted or
brought up could cut the output of both countries by more than a
half percent over the medium term. World trade would be reduced by
1.5%."
Mr. Weidmann said those who think tariffs can bring something
positive, as the Trump Administration does, are wrong.
"Proponents believe that higher tariffs can solve several
problems at once: They claim that raising tariffs can reduce
current-account deficits, protect jobs and even make people better
off," he said. This belief is mistaken, he added, because "tariffs
increase the prices of imported goods, and this weakens the
purchasing power of consumers."
Mr. Weidmann also expressed concern about the European Central
Bank's push to stimulate its economy, most notably via purchases of
bonds. He said that in contrast with the U.S. Federal Reserve, the
ECB must buy sovereign debt from nations with disparate local
economies, fiscal policies and credit risk levels. He worries that
the purchases suppress market signals about the health of an
individual nation's bond markets.
The official said the ECB wasn't out of additional stimulus
efforts if it deemed them necessary. But he said traveling this
road would raise complicated cost-and-benefit questions.
Mr. Weidmann also commented on the negative yields seen in
German government debt and attributed to a mix of factors,
including structural changes in the economy that have led to a
lower overall level of interest rates, as well as the influence of
central-bank purchases on long-term government debt.
The German central banker also said it isn't time to surrender
the idea that low unemployment can drive up inflation over time.
"While the pass-through of wage changes has diminished since the
1970s, it has been broadly stable lately," he said.
"Indeed, a 1% rise in wage costs would ultimately push up
consumer prices by around 0.3%," he said. It is a slow process, Mr.
Weidmann said, but he added that "a slow firming of inflation
shouldn't really be a surprise."
Write to Michael S. Derby at michael.derby@wsj.com
(END) Dow Jones Newswires
October 16, 2019 15:47 ET (19:47 GMT)
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