European Central Bank President Christine Lagarde has reaffirmed that robust European trade integration was the key shield against escalating US tariff pressures and cautious monetary moves.
Her comments came amid escalating trade tensions following decisions from major central banks and preceding a European Union summit and other top meetings on competitiveness, trade and the single market.
“The new US administration has taken office and embarked on a new course in domestic and foreign policy … [which] forces Europe to address both long-standing and new challenges in trade, economic competitiveness and defence,” said Lagarde at the opening a hearing before the Committee on Economic and Monetary Affairs (ECON) in Brussels on March 20.
From the opening speech, her dual focus was clear: while addressing inflation and monetary policy, she championed an open, trade-integrated EU.
“Crucially, the answer to the current shift in US trade policies should be more, not less, trade integration, both with trade partners around the globe and within the EU,” she said.
Lagarde reminded the audience that international trade, both within EU countries and with third countries, remained central for EU decision-makers and institutions, in spite of – or alongside – shifting US policies and heightened global economic uncertainties.
“The euro area, which is very open to trade and deeply integrated into global supply chains, especially with the United States, is particularly exposed to shifts in trade policies,” she said, explaining why the EU was so sensitive to the US “changing direction in several policy areas, with trade being a focal point”.
A March 20 study from Oxford Economics highlighted what was an important difference with the situation in the US, its industry being “relatively insulated from tariff impacts, as it is less interconnected with its trade partners due to the sheer size of its domestic market”.
Lagarde’s insistence on deepening trade integration has been underpinned by the ECB’s broader economic strategy.
“Crucially, the answer to the current shift in US trade policies should be more, not less, trade integration,” she declared, emphasising that bolstering both intra-EU and global trade ties was key to countering the shocks from tariff volatility .
This perspective was bolstered by the latest figures from Eurostat released on March 19: with the euro area’s annual inflation rate easing to 2.3 per cent in February 2025 — down from 2.5 per cent in January — the data suggested that while price pressures were moderating, the underlying uncertainty remained.
“We are determined to ensure that inflation stabilises sustainably at our 2 per cent medium-term target,” she said, referring to the ECB primary mandate of maintaining price stability, which meant keeping inflation at around 2 per cent.
For Lagarde, maintaining this stable inflation target was not only a matter of monetary prudence but also of safeguarding the economic benefits that arose from open trade.
In parallel, the ECB’s monetary policy adjustments further reinforced this strategy. “Earlier this month we lowered our key interest rates by another 25 basis points,” she said.
With the deposit facility rate now standing at 2.50 per cent —150 basis points below the peak observed in 2024 — the ECB signalled that less restrictive monetary conditions could provide the necessary cushion against the external shocks wrought by a changing US trade landscape.
This measured easing of monetary policy not only aimed to stabilise domestic prices but also mitigate the risks posed by retaliatory trade measures, which could otherwise disrupt global supply chains.
“The Single Market is estimated to have added between 12 per cent and 22 per cent to long-run EU GDP in its first 30 years and the level of trade between member states has doubled since its creation,” Lagarde said, calling for more intra-EU trade integration.
Eurostat’s new inflation data underscored that, in January 2025, the euro area’s trade surplus contracted dramatically — from €15.4 billion to just €1 billion — amid a modest 3 per cent rise in exports (from €225.9 billion to €232.6 billion) and a sharp 7.6 per cent surge in imports (from €215.3 billion to €231.5 billion).
The data reflected how rapidly external shocks could alter the economic landscape, experts said.
In a parallel analysis, the last Eurostat figures on trade presented a similarly cautionary narrative.
The EU’s trade balance shifted markedly — from a surplus of €15.9 billion in December 2024 to a deficit of €5.4 billion in January 2025.
This downturn was driven largely by a steep decline in key sectors. The surplus for machineries and vehicles fell from €19.1 billion to €9 billion, while other manufactured goods swung from a surplus to a deficit. Such rapid reconfigurations in the trade balance appeared to highlight how sensitive the EU was to global market fluctuations and unilateral tariff measures.
This has happened amid intensification of the transatlantic trade dispute. US tariffs now total $28 billion (€25.84 billion), while the EU has announced countermeasures amounting to €26 billion.
Notably, US President Donald Trump has threatened to impose a 200 per cent tariff on select EU product such as wine if the current EU tariff regime remained unchanged.
This hard-line stance starkly contrasted with the relative insulation of US industry, thanks to its vast domestic market.
Meanwhile, March 19’s meeting of major central banks comprising representatives from the US and UK but not the EU highlighted mounting global unease.
In response to the US Federal Reserve’s decision to keep interest rates at 4.25 per cent to 4.5 per cent, while projecting two rate cuts in 2025, Trump voiced his frustration on social platform X.
“The Fed would be much better off cutting rates as US tariffs start to transition (ease!) their way into the economy. Do the right thing,” Reuters on March 20 reported him as posting.
Fed Chair Jerome Powell, though, defended the decision, citing “unusually elevated” uncertainty due to the US administration’s aggressive tariff policies.
During a press conference on March 19, Powell noted that a “good part” of the Fed’s higher inflation forecast stemmed from tariffs, which have placed upward pressure on prices.
Investors, meanwhile, took a cautious approach, balancing hopes of future rate cuts with concerns over prolonged economic instability triggered by trade disputes.
While Lagarde emphasised the critical role of deepening trade integration to buffer against external shocks, Powell’s measured stance reflected a careful balancing act amid tariff-induced uncertainties.
Both central bank leaders, despite operating in distinctly different economic landscapes — with the US less dependent on international trade — converged on the insight that policy uncertainty and external shocks demanded prudent, proactive measures to ensure economic stability.
