European Central Bank President Christine Lagarde told CBS’ Face the Nation that the global economy has “yet to feel the pain” from President Donald Trump’s tariffs, offering a blunt assessment of how trade policy can transmit to prices and growth. Speaking amid the World Bank/IMF Annual Meetings in Washington, Lagarde identified tariffs and rapid advances in technology as the two forces driving a broader “transformation” in the world economy.

Lagarde said exporters and importers have so far absorbed much of the additional cost burden, compressing profit margins rather than immediately passing higher duties through to consumers. But she warned that the tolerance for squeezed margins is finite: at some point firms will seek to restore profitability by raising prices, a dynamic that could feed into broad consumer inflation.

The European leader’s comments come against a backdrop of elevated trade tensions that began with tariff escalations in 2018 and continued through subsequent policy choices. U.S. measures implemented during that period included steel and aluminum duties and Section 301 tariffs on Chinese goods, covering roughly $360 billion of imports and levying rates in some cases as high as 25 percent. Economists have documented that tariffs act as an implicit tax on supply chains, and while pass-through to consumer prices is often incomplete, the cumulative effect can still boost inflation and distort trade patterns over time.

For markets and policymakers, Lagarde’s observation flags a key risk: a delayed inflation impulse that could collide with still-tight monetary settings. Central banks have been managing a delicate balance since the post-pandemic inflation surge: raising rates to restore price stability while monitoring growth headwinds. If tariffs begin to materially elevate consumer prices, it would complicate central bank decision-making and could prompt a reassessment of inflation outlooks, particularly in highly traded goods sectors where pass-through is quicker.

The corporate sector is also at a crossroads. Firms have responded to tariffs by reshoring, diversifying suppliers, absorbing costs, or cutting margins to maintain market share. A shift toward price increases would change profit outlooks across industries and could depress real wages and demand if consumers face higher costs. Equity markets, which prize stable profit growth, would likely reprice sectoral winners and losers as margins adjust, while bond markets would take cues from any revised inflation trajectory.

Lagarde framed tariffs within a longer-term transformation driven equally by technological change. Automation, digitalization and artificial intelligence are altering comparative advantages and the structure of global value chains, sometimes reinforcing deglobalization trends by reducing the labor content of traded goods. The interaction of policy-driven trade barriers and technology-led restructuring presents a complex policy challenge: governments must weigh short-term political gains from protectionism against longer-term costs in productivity, prices and international cooperation.

Multilateral institutions have repeatedly urged caution, arguing that coordinated policy responses are preferable to unilateral measures that heighten uncertainty. Lagarde’s warning is a reminder that trade policy remains a live macroeconomic variable: its full economic effects can be delayed but consequential when they materialize, shaping inflation, growth and the conduct of monetary policy for years to come.