EU Can Counter U.S. Tariffs by Reducing Internal Trade Barriers, Says Lagarde

European Central Bank President Christine Lagarde says the European Union has the power to offset the economic impact of U.S. trade tariffs—if it takes decisive steps to reduce internal barriers and strengthen cross-border trade within the bloc. Speaking at a conference in Frankfurt, Lagarde explained that the EU’s long-standing export-driven economy is being challenged by rising global protectionism, including U.S. tariffs under President Donald Trump and China’s dominance over critical minerals like rare earth elements.

Lagarde noted that while external pressures are reshaping global trade dynamics, the EU can bolster its resilience by making trade among its 27 member states more efficient. She highlighted the Netherlands as an example of a highly open economy with comparatively low internal trade barriers. According to her, ECB analysis shows that if all EU countries lowered their barriers to match Dutch levels, the bloc could reduce internal obstacles by about 8 percentage points for goods and 9 percentage points for services.

Even modest action could produce significant benefits. Lagarde emphasized that implementing just a quarter of these potential reductions would still be enough to boost internal trade and fully offset the negative impact of U.S. tariffs on EU economic growth. She also encouraged member states to pursue broader structural reforms, such as harmonizing value-added tax systems and developing EU-wide corporate law frameworks. Lagarde even proposed exploring a voluntary “28th regime” that would streamline cross-border business operations across the union.

Beyond trade reforms, Lagarde credited fiscal spending—especially in Germany—for helping to cushion the region’s economy during turbulent times. She reaffirmed the ECB’s commitment to maintaining price stability after its substantial interest rate cuts in 2024 and 2025, underscoring that policymakers remain ready to adjust monetary policy as needed to keep inflation aligned with the central bank’s target.

Lagarde’s message is clear: while global protectionism poses challenges, the EU has untapped economic potential within its own borders. By lowering internal barriers and modernizing regulations, the bloc can strengthen growth, enhance competitiveness, and better navigate an increasingly uncertain global landscape.