Europe should expand trade with non-US countries in response to Donald Trump’s tariffs, European Central Bank president Christine Lagarde said.
"The US shall remain an important trading partner, [but] Europe should also aim to deepen its trade ties with other jurisdictions," she told a panel at the International Business Council of the World Economic Forum on Wednesday (20 August).
Both the global and European economies have proven "resilient," she said, in part because companies front-loaded orders to evade tariffs, temporarily boosting activity — especially in sectors with major US exports such as pharmaceuticals.
"Recent trade deals have alleviated, but certainly not eliminated, global uncertainty, which persists because of the unpredictable policy environment," Lagarde said.
With signs of a slowdown in the second quarter, she argued the time has come to "leverage the strengths" of Europe’s "export-oriented economy."
The EU already leads in global trade agreements and is the top trading partner for 72 countries, accounting for nearly 40 percent of global GDP.
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.
On a more positive note, she added that while the US-EU deal, according to ECB figures, translates into an effective average tariff of between 12 and 16 percent, this remains well below the most severe June projections of 20 percent.
Lagarde has previously said Europe should use its global trade advantage — the euro’s role in trade invoicing has grown to 40 percent — to expand its network of trade deals and "make clear that we support a win-win approach to trade."
To this end, the ECB has taken steps to encourage euro use in trade, including preparing a digital euro and improving cross-border payments by "extending swap and repo lines [short-term borrowing] to key partners."
A stronger international role for the euro would help EU countries borrow more cheaply and shield them from volatile exchange rates and capital flows, she argued.
But boosting the euro’s global role will require Europe to commit not only to trade, but also to military power, Lagarde told an event in Berlin in May.
"The euro won’t gain further ground by default," she said.
An ECB report published in June also suggested the international role of the euro is treading water globally, clinging to a 19-percent share of global currency usage — a level largely unchanged since 2010.
This comes even as US financial credibility continues to crumble under Donald Trump’s erratic economic policies.
“If Europeans want to strengthen the international role of the euro, they’ll have to earn it," Lagarde said.
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Wester is a journalist from the Netherlands with a focus on the green economy. He joined EUobserver in September 2021. Previously he was editor-in-chief of Vice, Motherboard, a science-based website, and climate economy journalist for The Correspondent.
Wester is a journalist from the Netherlands with a focus on the green economy. He joined EUobserver in September 2021. Previously he was editor-in-chief of Vice, Motherboard, a science-based website, and climate economy journalist for The Correspondent.