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Draghi says unilateral trade policy moves are 'dangerous'
[FRANKFURT] Unilateral decisions on trade policy are dangerous and disputes should be settled using international bodies, European Central Bank President Mario Draghi said on Thursday, in the wake of US plans to impose tariffs on imports of steel and aluminium.
"We are convinced that disputes should be discussed and resolved in a multilateral framework, that unilateral decisions are dangerous," Mr Draghi said at a news conference after the ECB's regular monetary policy meeting.
US President Donald Trump has unveiled plans to slap levies on imported steel and aluminium and openly raised the prospect of a trade war to reduce the US trade deficit.
Mr Draghi suggested a unilateral approach on trade matters, however, reflected badly on the state of diplomatic relations between countries.
"There is also a worry about the state of international relations, because if you put tariffs against (those) who are your allies, one wonders who the enemies are," he added.
He said the immediate impact of the US tariffs was unlikely to be big. But the longer-term impact would depend on whether retaliatory measures were taken, whether there was a response in the exchange rate, and also what the effect would be on confidence.
"The effect on confidence is very difficult to assess. But if it's a negative effect on confidence that's going to be negative on both inflation and the outlook." Some investors have been speculating such a trade war could complicate the ECB's plan to withdraw post-crisis monetary stimulus by hurting the euro zone's economy.
After its monetary poliy meeting, the ECB dropped a long-standing pledge to increase its bond buying if needed, taking another small step in weaning the euro zone economy off protracted stimulus. Keeping its broader policy unchanged, the ECB said it could still extend its 2.55 trillion euro (S$4.16 trillion) bond purchase scheme beyond September if needed. But it omitted a reference to bigger purchases, a signal that it remains on track to end a three-year-old stimulus scheme before the end of 2018.