Geneva (Brussels Morning Newspaper) – European Central Bank (ECB) President Christine Lagarde said that the trade agreement between Washington and Brussels is close to the baseline assumed by the ECB, but uncertainty remains in key areas like pharmaceuticals and semiconductors, Reuters reported.
The European Union agreed to a 15% tariff on most products from the agreement last month, preventing a full-scale trade fight and offering clearer guidance to businesses.
How closely does the deal align with ECB forecasts?
In a speech, Lagarde said,
“The trade deal establishes an effective average tariff estimated to lie between 12% and 16% for U.S. imports of euro area goods.”
“This effective average tariff is somewhat higher than – but still close to – the assumptions used in our baseline projections last June,”
She said.
“The outcome of the trade deal is well below the severe scenario for U.S. tariffs of over 20%.”
How does the US-EU trade deal affect growth?
The ECB’s baseline projection estimates a 1.1% growth next year, whereas the “severe” scenario would reduce this to 0.7%, according to the ECB’s June forecasts. Lagarde noted that the U.S.-EU trade deal is likely to continue impacting economic growth, pointing out that a slowdown, anticipated for some time, was already visible in the second-quarter economic data.
What steps should europe take to diversify trade?
She further stated that the EU, which has traditionally depended on extensive foreign trade for growth, should now diversify its trading partners to sustain growth and mitigate the negative effects of tariffs.
“While the United States is – and will remain – an important trading partner, Europe should also aim to deepen its trade ties with other jurisdictions, leveraging the strengths of its export-oriented economy,”
She said.
How might shifting our policy challenge European stability?
In early 2025, Lagarde cautioned Europeans to get ready for changing US trade policies, potentially to include selective tariffs. She stated Europe should consider how to react in advance with economic reforms to remain competitive.
Lagarde stated that a full-blown trade war would have consequences all over the world, and for the US, while potentially mobilizing Europe to unite and devote to reforms.
Lagarde explained that the ECB tracks these types of trade agreements, but relies on baseline economic projections and adjusts these projections one meeting at a time. She said the reduction of uncertainty surrounding trade is welcomed by all economic actors, and if these uncertainties can be resolved quickly, the economic risk will be reduced.
