ECB’s Rehn on Trump tariffs: Europe must give as good as it gets

The EU should prioritize politics over economics and retaliate against Donald Trump, one of the European Central Bank’s top policymakers said.

In an interview with POLITICO, Bank of Finland Governor Olli Rehn urged the European Union to prepare “proportionate countermeasures” to the United States president’s imposition of tariffs on imports from the bloc.

“There is an economic and a political logic,” Rehn, a former European economy commissioner, said. “Many economists advocate non-retaliation, because [retaliatory] tariffs would harm oneself. But … it’s not only about economics, it’s also about politics, and politics does affect the economy.”

Rehn’s comments, like those of ECB President Christine Lagarde on Monday, suggest some confidence that the eurozone economy can withstand a trade war with its biggest trading partner.

The ECB estimates that the first wave of U.S. tariffs could take 0.3 percentage points off gross domestic product over the next year — and 0.5 percent if the EU retaliates in kind.

Central bankers past and present have been split over how best to respond to a political shift that goes against the liberal economics they usually stand for.

Rehn’s comments position him closer former Bank of England Governor Mark Carney than to his former boss at the ECB, Mario Draghi.

Since taking over as Canadian prime minister on March 14, Carney has continued his predecessor Justin Trudeau’s policy of “dollar-for-dollar” retaliatory tariffs, while Draghi has argued Europe may be better off holding back, given that it is more dependent on external trade than is the U.S.

With characteristic understatement, Rehn noted that “quite a lot has happened” since the ECB’s Governing Council last met on March 6. U.S. policy has hurt the growth outlook but European policy — especially Germany’s far-reaching plans to raise spending on defense and infrastructure — should boost it.

“If you look at the impact of these two factors, they may create both upside and downside risks to inflation,” Rehn said.