EU can beat Trump’s tariffs with domestic trade, ECB’s Lagarde says

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FRANKFURT (Reuters) -The European Union can offset the impact of U.S. trade tariffs if it knocks down some of its internal barriers, European Central Bank President Christine Lagarde said on Friday.

Lagarde said the EU’s export-oriented economic model has been upended by a protectionist turn at the global level, from U.S. President Donald Trump’s trade levies to China’s grip on rare earths.

But she argued the bloc could boost its fortunes if it made trade among its 27 members easier, citing the Netherlands, one of the club’s most open economies, as a virtuous example.

“Our analysis shows that if all EU countries were merely to lower their barriers to the same level as that of the Netherlands, internal barriers could fall by about 8 percentage points for goods and 9 percentage points for services,” she said at a conference in Frankfurt.

“If we only did a quarter of that, it would be sufficient to boost internal trade enough to fully offset the impact of U.S. tariffs on growth.”

She listed wide-ranging economic reforms, from harmonising value-added taxes to creating EU-wide corporate law, and even proposed structural changes to the bloc’s own functioning, like an opt-in framework known as the “28th regime”.

Lagarde also praised fiscal spending, especially in Germany, for buffering the economy and said the ECB, which has sharply cut rates in 2024-25, would do its part.

“We will continue to adjust our policy as needed to ensure that inflation remains at our target,” Lagarde said.

(Reporting by Francesco Canepa and Balazs Koranyi)