“Europe Should Expand Trade Ties with Non-US Countries”

Stressing that the US 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, European Central Bank (ECB) President Christine Lagarde said on Wednesday.

Addressing a panel at the International Business Council of the World Economic Forum (WEF), Lagarde said that Europe has been the number one trading partner for 72 countries accounting for nearly 40% of global GDP.

The European Union (EU) already has the largest network of trade agreements in the world and it should expand trade with non-US countries in response to Donald Trump’s tariffs, which has imposed higher tariffs on euro area goods relative to the US tariff regime before April.

“The trade deal establishes an effective average tariff estimated to lie between 12% and 16% for US 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,” Lagarde said.

Sectors with higher export exposure to the US such as pharmaceuticals, which accounts for over one-fifth of euro area exports to that nation, recorded strong output growth during this time. At the same time, uncertainty persists as sector-specific tariffs on pharmaceuticals and semiconductors remain unclear, she noted.

Resilient Economies

Both the global and European economies have proven resilient in part because companies front-loaded orders to evade tariffs, temporarily boosting activity, especially in sectors with major US exports such as pharmaceuticals, she said.

“This resilience has been mainly driven by tariff-induced distortions of economic activity. In the first quarter of the year, for example, we saw strong global frontloading as importers boosted their inventories in anticipation of higher tariffs,” she said.

That has led to stronger than expected growth. The International Monetary Fund (IMF) said that global growth for the first quarter of 2025 was 0.3 percentage points higher than it had projected back in April – with international trade and investment driving activity.

Recent trade deals have alleviated, but certainly not eliminated, global uncertainty, which persists on account of the unpredictable policy environment. One index of global trade policy uncertainty has fallen by roughly half from its peak in April, but remains well above its historical average.

Of course, with tariff hikes now being implemented, this effect is now reversing and the expected slowdown in euro area growth was already evident in the second quarter of this year.

The other factor underpinning the economy has been stronger private consumption and investment, which have contributed positively to growth. Moreover, the labour market remains robust. The unemployment rate, which was 6.2% in June, has changed little over the past year, while the labour force has continued to grow.

With signs of a slowdown in second quarter, she said that time has come to leverage the strengths of Europe’s export-oriented economy. But with growth expected to slump in the third quarter as front-loading unwinds, she said more effort is needed to open alternative trade avenues, she said.