How can Trump's tariffs be neutralized? - ECB head gives solution: EU must facilitate internal trade
The European Union can reduce the impact of US trade tariffs if it lowers some of its internal barriers, European Central Bank President Christine Lagarde said.
Lagarde stressed that the EU's export-oriented economic model has been shaken by the protectionist turn globally, from tariffs imposed by US President Donald Trump to China's control over rare earths.
But the ECB president argued that the bloc could improve economic flow if it facilitated trade between its 27 member states, citing the Netherlands, one of the EU's most open economies, as an example.
"According to our analysis, if all member states were to lower their barriers to the same level as the Netherlands, internal barriers could shrink by around 8 percentage points for goods and 9 percentage points for services," she said at a conference in Frankfurt.
"If we were to reach just a quarter of this level, it would be enough to increase domestic trade enough to fully offset the impact of US tariffs on growth," Lagarde explained.
She outlined broad economic reforms, from harmonizing value-added taxes to creating a common EU corporate law. The ECB president even proposed structural changes to the functioning of the bloc itself, such as a framework for voluntary participation called the “28th regime.”
Lagarde also praised fiscal spending, particularly in Germany, to protect the economy, and said the Central Bank, which has cut interest rates significantly in 2024-25, will intervene as needed.
"We will continue to adjust our policy as needed to ensure that inflation stays at our target," Lagarde said.
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