ECB’s Knot says there is a serious chance of a trade war happening

• If US imposes tariffs, China could look to send cheap goods to the EU
• That may see China exporting deflation to Europe
• Wage demands of 7% are not aligned with return to 2% inflation target

It’s all conjecture at this point but the damage to the economic outlook is already evident in the market pricing. The question now is to what extent does Trump go in pursuing the war on tariffs and how will the EU and/or China respond to that.

This article was written by Justin Low at www.forexlive.com.