NEED TO KNOW

• ECB President Christine Lagarde warns that shaking up the existing US-EU trade equilibrium will cause business disruptions and uncertainty
• The current 15% tariff ceiling agreement took effect in July 2025 after negotiations between President Trump and EU Commission President Ursula von der Leyen
• Lagarde emphasized that businesses need predictable trade rules, comparing the situation to driving without knowing the rules of the road

WASHINGTON (TDR) — European Central Bank President Christine Lagarde issued a stark warning Sunday that shaking up the trade equilibrium between the United States and European Union would trigger significant business disruptions, as the Trump administration considers new tariff measures despite existing agreements capping duties at 15%. Speaking on CBS’s “Face the Nation”, Lagarde stressed that trade uncertainty poses a greater threat to economic stability than the tariffs themselves, urging clarity as President Donald Trump weighs additional duties on European imports.

The warning comes as the administration faces a Monday emergency meeting to discuss trade policy, with existing US-EU tariff arrangements already establishing a 15% ceiling following negotiations last summer. Lagarde, who served as France’s trade minister before leading the European Central Bank, characterized the current trade relationship as carefully balanced, warning that sudden changes would force businesses to navigate unpredictable terrain.

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> “It’s critically important that all people in trade have clarity about the future of relationships. It’s a bit like driving — you want to know the rules of the road before you get in the car.” — Christine Lagarde

Lagarde’s comments reflect mounting concern among European leaders that the administration may abandon or modify the July 2025 trade deal that suspended planned EU retaliatory tariffs on approximately €26 billion worth of American goods. That agreement, reached between Trump and Ursula von der Leyen, president of the European Commission, had provided temporary stability after months of tit-for-tat tariff threats.

## Economic Impact of Trade Uncertainty

The ECB president emphasized that uncertainty itself inflicts more economic damage than tariff rates alone, as businesses delay investment and hiring when they cannot forecast trade conditions. Her assessment aligns with recent ECB analysis showing that trade policy unpredictability weighs more heavily on growth than the direct cost of duties.

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> “To shake up the equilibrium which people in trade had got used to is going to bring about disruptions in business for sure.” — Christine Lagarde

Those disruptions extend beyond boardrooms to consumers on both sides of the Atlantic. Lagarde noted that while some US importers absorbed costs initially by squeezing profit margins, those businesses eventually pass expenses to American consumers. Multiple studies currently underway are examining how tariff burdens distribute between exporters, importers, and retail customers.

## Central Bank Independence Under Scrutiny

Beyond trade policy, Lagarde defended the principle of central bank independence following the Trump administration’s Justice Department investigation into Federal Reserve Chair Jerome Powell. She joined central bankers worldwide in signing a statement supporting Powell, arguing that political interference in monetary policy undermines economic stability.

> “For monetary policy, the rule of law is critically important, and the independence of a central bank is critically important. You don’t want someone who sets interest rates to be under political influence.” — Christine Lagarde

Lagarde is scheduled to receive the Sutherland Leadership Award this week, named after former European Commissioner Peter Sutherland. The honor comes as she navigates her own pressures, including speculation about whether she might leave the ECB early to allow the French president to select a successor before potential political shifts in France.

She dismissed those rumors during the interview, stating she remains “riveted to a mission” focused on price stability and financial resilience. Under her leadership, the ECB has cut policy rates by 100 basis points since December to cushion economic impacts while maintaining its 2% inflation target.

## Retaliation Risks and Economic Consequences

While emphasizing that retaliation decisions fall to political leaders rather than central bankers, Lagarde has consistently warned that trade wars hurt all participants. ECB staff analysis indicates that 25% US tariffs on EU imports would reduce euro area growth by approximately 0.3 percentage points in the first year, with that impact doubling to 0.5 percentage points if Europe responds with reciprocal measures.

Despite these risks, the euro area economy has proven more resilient than initially projected when tariffs first took effect. Lagarde credited the absence of significant retaliation and the July trade deal for preventing supply chain disruptions that many economists had predicted. The euro has strengthened against the dollar, helping contain inflation at the ECB’s 2% target.

However, growth remains modest at 0.1% quarter-over-quarter, and Lagarde cautioned that the full effects of trade tensions may not yet be visible. The ECB’s next policy meeting is scheduled for March, with the bank holding its key rate at 2% as it assesses whether the current economic stability can withstand renewed tariff threats.

***As the administration weighs new trade measures, will preserving the existing equilibrium prove more beneficial than disrupting it for negotiating leverage?***

Sources

This report was compiled using information from CBS’s Face the Nation interview with Christine Lagarde, Associated Press coverage of ECB trade analysis, ECB speech on trade wars and central banking, FinTech Weekly reporting on Davos warnings, Euronews coverage of inflation risks, and The Irish Times reporting on trade retaliation.

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