ECB President Christine Lagarde spoke in an interview on CBS’s Face the Nation on Sunday. It was a wide-ranging interview.
On the US dollar:
Lagarde suggested that the US dollar's dominance is starting to decline, noting that future developments will show the extent of this erosion. As evidence, she pointed to the recent rally in gold prices and a trend of capital flowing out of the US and into regions like Europe.
Lagarde outlined the three essential components required for a currency to maintain global trust:
Geopolitical credibility
Rule of law and strong institutions
A powerful military force
She acknowledged that the US remains in a "very dominant position" on at least one, and possibly two, of these fronts, but she issued a warning that such dominance is not permanent and could "erode over the course of time."
On tariffs and trade:
Regarding the global economic impact of higher US tariffs, Lagarde stated that the full negative effects have yet to be felt. Currently, both US and European companies are absorbing roughly two-thirds of the tariff costs by reducing their profit margins. However, this is unsustainable. She cautioned that once margins become too strained, the burden will inevitably be passed on to consumers, making the pain a "question of time."
On China and rare earths:
Commenting on the dispute over China's export restrictions on rare earths and the US's retaliatory threats, Lagarde initially suggested that much of the current rhetoric is just "typical of negotiating tactics." However, she stressed that China possesses a "very, very strong trading position" in this area and intends to leverage it. To counter this, she urged the US, Europe, and other affected countries to "join forces" and act as a unified "purchasing force" to gain leverage against China's selling power.
