(Bloomberg) -- The global trade war has the potential to affect exchange rates, leading to additional negative consequences, according to European Central Bank Governing Council member Ewald Nowotny.
“What we just see now is that we have quite interesting effects with regard to the exchange rates,” Nowotny said during speech in Zurich. “Which means that in addition to the trade war, we might have something like a currency war. Even if it is not an intentional war. But it might have effects that are much more heavy than if you just look at the tariffs.”
The world's two biggest economies have each fired their first shots in what China has called “the largest trade war in economic history.” Higher tariffs on $34 billion of both nation's goods began on Friday, with levies on another $16 billion likely to be unveiled in a few weeks.
“It's very difficult to predict what will be the outcome,” Nowotny said. “If you look at what we have just now, it would not be dramatic. But of course it has potential that it might escalate.”
To contact the reporters on this story: Catherine Bosley in Zurich at cbosley1@bloomberg.net;Patrick Winters in Zurich at pwinters3@bloomberg.net
To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Zoe Schneeweiss, Brian Swint
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