The ECB and the IMF warn against the US trade wars

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On Wednesday 12 June, 2016 at the 8th ECB Conference on Central, Eastern and South-Eastern Europe (CESEE Group) Representatives of the International Monetary Fund (IMF), Ms. Christine Lagarde and the European Central Bank (ECB), Mr. Mario Draghi, expressed their concern over the development of trade wars led by the United States. Global financial markets are sensitive to investor concerns and respond to them with the excessive volatility, especially the foreign exchange market with respect to the US dollar and the euro exchange rates.

During the European trading morning on June 13, 2019, at 8:42 CET, the EUR/USD currency pair traded on Forex at a mutual exchange rate of US$1.1297 per EUR with EUR strengthening by + 0.09% against the USD. The US dollar is currently losing again against the Japanese yen (JPY), when the USD/JPY currency pair traded at JPY 108.33 per USD, with the current daily USD weakening by -0.15% against the JPY. However, due to persistent problems with Brexit, the US dollar slightly strengthened against the British pound (GBP) by + 0.06% at the exchange rate of US$1.2679 per GBP.

According to the top representatives of the ECB and IMF, the trade dispute between the US and China could get worse. At the same time, Europe could be hit by the United States by imposing import tariffs on cars imported from the EU to the US. In August 2018 the US President Donald Trump said that he could impose up to 25% duty on imported cars, spare parts and other accessories, including automotive services from the EU to the US, but has not yet done so. Economic rapporteurs state that this would be a huge problem, especially for those EU countries, whose substantial part of their GDP is created by the automobile industry. The most affected countries would most likely be Germany, France, the Czech Republic along with Slovakia and Romania.

“Global trade has faced headwinds in recent years as trade-restrictive measures have outpaced liberalising measures,” Draghi stated in Frankfurt. “The Central and Eastern European business model has become vulnerable to shocks to international trade and financial conditions,” Draghi said, adding that in some CEESE countries, vehicle exports account for nearly 30% of total exports, making them more vulnerable to the US President Trump’s threat of imposing import duties and tariffs. “The effect of tariffs could be amplified, as a large share of goods cross borders multiple times during the production process”, he added. “The main long-term challenge is moving towards a more balanced growth and financing model, which is more reliant on domestic innovation and on higher investment spending than it has been so far”, Draghi said.

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