(Yicai) Jan. 22 -- Europe may not be fully prepared for the return of Donald Trump as President of the United States, according to Lorenzo Codogno, chief economist at his own consulting vehicle Lorenzo Codogno Macro Advisors and visiting professor in practice at the European Institute of the London School of Economics and Political Science.

In a recent interview with Yicai, Codogno expressed concerns about Trump potentially levying import tariffs on Europe, mainly because Europe would take time to respond and find a unified answer.

Codogno was also the chief economist and director-general at the Treasury Department of the Italian Ministry of Economy and Finance between May 2006 and February 2015.

Trump was officially sworn in as the 47th President of the US in Washington, DC, yesterday. He did not invite European Commission's President Ursula vor der Leyen to the inauguration ceremony.

Excerpts from the interview are below:

Yicai: How would it impact the economy if Trump imposes tariffs on the EU? And how do you think the European Central Bank would respond?

Codogno: It's likely more about politics and the geopolitical environment than economics. My sense is that Europe will be cautious in its response to Trump. If Trump's motivation for tariffs is political, Europe's response will likely be political as well, meaning it will avoid imposing widespread tariffs that would not benefit Europe.

Instead of responding with additional tariffs on US goods and services, I believe Europe will likely target specific areas, such as Trump's support in the Midwest and the agricultural sector. This could be a strategic move to influence the midterm elections and undermine Trump's support among the American population.

Yicai: If Trump imposes tariffs on the EU, what's your take on inflation in the next two years?

Codogno: If Trump imposes tariffs on Europe and the rest of the world, I believe that sooner or later, we will see inflation in the US because goods and services will become more expensive for US consumers, leading to higher prices.

On the other hand, Europe will be in a difficult position because it doesn't need higher rates or inflation. Therefore, if Europe maintains a prudent approach to trade policy -- meaning it does not respond to the US with tariffs -- the impact could be contained. Europe will need to continue reducing interest rates to bring its policy back to neutral without further shocks.

So, I believe there could be a decoupling of policies between the US and Europe, as inflation trends might diverge.

Yicai: Both Trump and Elon Musk seem to be influencing European politics. Why is that?

Codogno: It's difficult to pinpoint their exact interests, but one possibility is that they don't want to see a divided European Union. The EU is not a country but rather a union of countries that are increasingly sharing policy tools and governance. In the case of Eurozone countries, they also share a common currency and much more.

Effectively, by supporting political movements that are not in favor of European integration, I believe Trump is trying to fragment Europe and make it even more divided than it sometimes appears. From my perspective, this is not good.

We will see the situation with trade tariffs because trade policies are centralized in Europe. Essentially, it is the responsibility of the European Commission, not individual countries. Therefore, if sanctions or tariffs are imposed on a specific region, such as the European Union, they must apply uniformly across all member states rather than being divided by country. This is because it is the EU's policy.

Looking ahead, I would expect that once Trump takes office later this month, he will shift his approach and adopt a more institutional attitude when engaging with European governments and politicians. As US President, he will need to engage with properly elected leaders in Europe rather than supporting far-right movements.

We will see how Trump behaves, but it is certainly unsettling to witness both him and especially Musk offering their support to these far-right groups, which stand in opposition to European integration. This is not good for Europe.

Editor: Futura Costaglione