Trade war resolution may require concessions from all, ECB’s Lagarde says

Coercive trade policies fail to resolve financial imbalances and the risk of mutual economic damage is so great that all sides need to weigh policy adjustments to resolve tensions, European Central Bank President Christine Lagarde said on Wednesday.

The United States set off global economic turmoil in April when it unveiled a raft of tariffs on most nations and trade flows have been disrupted while governments negotiate with the Trump administration.

Lagarde, speaking on a rare visit to Beijing, said all countries needed to take responsibility and should tweak policies that have led to either excess supply or excess demand, otherwise trade barriers and their likely retaliation will erode global prosperity.

"We have witnessed a sharp rise in the use of industrial policies aimed at boosting domestic capacity," Lagarde said at the People’s Bank of China. "Since 2014, subsidy-related interventions that distort global trade have more than tripled globally."

China has extensively relied on subsidies for decades, especially in the case of export-focused production, and critics argue this gives its firms an unfair advantage that is used to crowd out production elsewhere.

But China is not alone in using subsidies and others, particularly in emerging markets, were resorting to such schemes, Lagarde said.

The share of the U.S. in global demand has meanwhile soared in recent years, which partly reflects excessive spending in the public sector, contributing to the imbalances, Lagarde argued.

A resolution in the conflict lies in more closely respecting global rules and forging bilateral or regional agreements rooted in mutual benefits, she said.

(Reporting by Balazs Koranyi; Editing by Lincoln Feast.)