ECB’s Lagarde advocates cheque book strategy to handle Trump’s tariff threats

In an interview with the Financial Times, ECB President Christine Lagarde proposed a measured approach to handling U.S. President-elect Donald Trump’s tariff threats, favoring a “cheque book strategy” over outright retaliation.

Trump has outlined plans for sweeping tariffs, including a 60% levy on Chinese goods and a 10-20% range on imports from other countries, including Europe. Lagarde interpreted the range as a negotiating tactic, suggesting Trump is “open to discussion.”

Lagarde expressed preference for a “cheque book strategy” over a “pure retaliation strategy.” She explained that Europe could offer to purchase certain US goods and signal readiness for constructive dialogue.

“This is a better scenario than a pure retaliation strategy, which can lead to a tit-for-tat process where no one is really a winner,” she stated.

On the inflationary effects of tariffs, Lagarde admitted the outcome remains uncertain. She explained that the net impact on inflation would depend on various factors, including GDP shifts, currency movements, the specific goods targeted, and the duration of the tariffs.

“If anything, maybe it’s a little net inflationary in the short term,” she remarked, but emphasized the difficulty of forming a conclusive view without further details.

Full interview of ECB’s Lagarde here.