No. 960 - The macroeconomic effects of import tariffs on the euro area: a model-based assessment
This paper assesses the macroeconomic effects of an increase in U.S. tariffs on imported goods, using a multi-country model that includes the euro area, the United States, China, and the rest of the world. It considers both the direct effects, stemming from the reduction in international trade, and the indirect effects, relating to higher uncertainty and the possible rebalancing of international financial portfolios away from the United States toward other economic areas.
The direct effects of tariffs on euro-area GDP would be negative, and more pronounced if European tariffs on U.S. goods were also increased (retaliation). Greater uncertainty about trade policies would reduce investment demand, further deepening the decline in output and lowering inflation. A possible rebalancing of international portfolios would support economic activity and reduce inflation through exchange rate appreciation.
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16 September 2025
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