(Bloomberg) — China may start selling its products to Europe at discounted rates if the US starts a trade war by imposing new tariffs, according to European Central Bank Governing Council member Klaas Knot.
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In such a situation, “there is a chance that the Chinese will start offering their goods in Europe at lower and lower prices,” Knot said in an interview published in Dutch newspaper Volkskrant on Monday.
“We are already seeing that happening in the steel market,” he said. “In this way, China is, as it were, exporting its deflation to us.”
Policymakers around the world are watching the US for potential trade levies when Donald Trump returns to the White House in January. The incoming US president has vowed to impose tariffs on other countries, with China at the top of his list.
Earlier this month, ECB Vice President Luis de Guindos said a trade war triggered by new US tariffs would significantly weigh on economic expansion.
“If a trade war breaks out, it is extremely negative for the global economy, particularly for growth but also for inflation,” he said.
Knot echoed his ECB colleague.
“There is, of course, a serious chance of a trade war, and that is a bad thing for an open economy like the Netherlands,” he said. Referring to a recent trip to China, Knot said President Xi Jinping “left the clear impression that China is prepared for anything that could come their way from the US.”
Turning to domestic issues, Knot warned labor unions that strong wage-increase demands in Europe risk accelerating inflation.
Although it is fair to want to restore purchasing power, “I only say to the unions: it is a question of sizing,” he said. “Everyone feels in their bones that a wage demand of 7% is not in line with a return of inflation to 2%.”
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