Weidmann Says U.S. Tariff Exemption Isn't a Free-Trade Victory

(Bloomberg) -- Bundesbank President Jens Weidmann said an exemption of the European Union from U.S. metal tariffs isn’t a victory for free trade, even if it reduces the risk of an escalation in the conflict.

Weidmann, a member of the European Central Bank’s Governing Council, welcomed the agreement that will exclude the block’s 27 members from punitive aluminum and steel duties that took effect on Friday, while warning that the EU’s respite was only temporary.

“It’s not a victory for free global trade because punitive tariffs remain in place for other countries that could not secure preferential treatment, ” he said in a speech in Vienna on Monday. “Therefore, the goal must be not only to prevent new barriers to trade or keep them as low as possible, but to reduce existing ones. I very much hope that recent signals from the U.S. to talk about such a reduction will not fizzle out, but trigger a change of perspective.”

Global finance chiefs were unusually blunt last week in warning that the U.S. is putting at risk the very international order that it helped create. At a G-20 meeting in Buenos Aires, they failed to convince Treasury Secretary Steven Mnuchin to pare back protectionist steps. Mnuchin’s response: “We are not afraid” of a trade war.

In his speech, Weidman said everyone stands to lose in such a conflict. The aim should be to preserve the rule-based, multilateral framework within the World Trade Organization, which facilitates economic exchange between countries, resolves trade conflicts in an orderly manner and finds solutions acceptable to all involved, he said.

“The multilateral framework has served the world economy well, and we should strengthen, improve and expand it,” he added.

Exiting QE

Turning to monetary policy, Weidmann said the ECB should start scaling back unprecedented stimulus “soon” as inflation will pick up and be broadly in line with the central bank’s goal in 2020. Market expectations for the first interest-rate increase around the middle of next year are “probably not entirely unrealistic,” he said.

“In the medium term, in line with the outlook for inflation, monetary policy must be normalized to regain room to maneuver,” he said. “The end of net purchases is only the beginning of a monetary-policy normalization process that will take several years, and that’s why it’s particularly important to start soon.”

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