Europe's Top Central Banker Says 'Not To Retaliate, But To Negotiate' To Avoid Trump Trade War

Christine Lagarde, the European Central Bank chief, has called on European leaders to engage in negotiations with Donald Trump to avoid a trade war. Lagarde emphasized the importance of cooperation over retaliation in response to Trump’s proposed tariffs.

What Happened: In her first interview since Trump’s re-election, Lagarde warned that a trade war could severely impact global economic growth. She stated that Europe should adopt a “cheque-book strategy” by purchasing more U.S. goods, such as liquefied natural gas and defense equipment, to mitigate potential conflicts, the Financial Times reported on Thursday.

Lagarde expressed concern over Trump’s threats of imposing up to 20% tariffs on non-Chinese imports, highlighting the risk to the EU’s trade surplus with the U.S. She argued EU needs "not to retaliate, but to negotiate" and that a retaliatory approach could lead to a detrimental tit-for-tat scenario.

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The European Commission is currently evaluating its response options, which may include increasing U.S. export purchases and aligning more closely with U.S. trade policies. Lagarde’s comments reflect a shift in strategy, urging Europe to transform perceived threats into challenges that require proactive responses.

Why It Matters: The call for negotiation comes amid heightened tensions following Trump’s announcement of imposing a 25% tariff on imports from Canada and Mexico, citing border security concerns. This move has already prompted Canada to consider retaliatory tariffs on U.S. goods. The potential for a trade war is further complicated by Trump’s additional tariff threats on Chinese imports, which he claims are necessary to address drug trafficking issues.

Moreover, companies like Nvidia Corp (NASDAQ:NVDA) and Intel Corp (NASDAQ:INTC) are already reassessing their operations in Mexico due to the looming tariff threats. These developments underscore the potential widespread economic impact of Trump’s trade policies, making Lagarde’s call for negotiation a critical step in preventing further economic disruption.

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Disclaimer: This content was partially produced with the help of Benzinga Neuro and was reviewed and published by Benzinga editors.

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