Lagarde: US Tariffs Likely More Disinflationary for Europe

US tariffs imposed under President Trump are expected to slow global trade and economic growth, with the World Trade Organization forecasting a decline in trade volumes and UBS estimating a $780 billion burden on the global economy, primarily affecting China. While these tariffs are projected to sharply raise inflation in the US, their impact on European inflation may be disinflationary, especially if the EU does not implement countermeasures, according to ECB President Christine Lagarde. The tariffs have already led to downward revisions in US and global GDP forecasts, with UBS expecting US growth to slow and core inflation to peak in 2026. The Federal Reserve may respond with rate cuts if tariffs significantly harm the US economy, though such cuts could signal recession fears and boost demand for safe-haven assets. Minneapolis Fed President Kashkari emphasized the Fed’s responsibility to prevent tariff-driven inflation from becoming entrenched, even as near-term inflation expectations have risen. Retaliatory tariffs from China and Canada have been announced, but further escalation remains uncertain as the EU has paused its response pending negotiations.