Blanket tariffs do more harm than good and may be ineffective, ECB’s Panetta says

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FRANKFURT (Reuters) – Blanket trade barriers could do more harm than good and may not even be effective, European Central Bank policymaker Fabio Panetta said on Friday, just as incoming U.S. President Donald Trumps looks to impose tariffs on many, if not most, imports.

“We must avoid the illusion that blanket measures erecting protectionist barriers are the solution to our problems,” Panetta, the Bank of Italy governor, said in Rome. “A blanket measure is like a kitchen knife: it is not the right instrument to perform complex surgery.”

Import duties, including a 10% universal tariff on imports from all foreign countries and a 60% tariff on imports from China, have been a key plank of Trump’s policies and may have the biggest global impact.

Panetta argued that blanket tariffs would divide the world into rival blocs, with a detrimental effect on output, inflation and welfare.

“An escalation of trade barriers between blocs would lead to severe efficiency and welfare losses for all,” Panetta said. “It would reduce the diversification of our economies and increase the volatility of output and inflation.

Tariffs may not even work as intended, even if they create stress in the global economy.

“Protectionism would not be as protective as it might seem, as blunt policies would inevitably be circumvented,” Panetta said. “Key products targeted by bilateral trade restrictions would find indirect routes to opposing blocs through trade with third countries.”

Such unintended consequences would undermine economic efficiency and security, he argued.

Europe could be especially hard hit if critical supply chains were “weaponised” by commodity-producing countries, as this would especially hamper the bloc’s large manufacturing sector, he said.