The eurozone could replace the economic output it has lost as a result of higher U.S. tariffs on its exports through “modest” reductions in barriers to trade between members of the European Union, according to economists at the European Central Bank.

The eurozone could replace the economic output it has lost as a result of higher U.S. tariffs on its exports through “modest” reductions in barriers to trade between members of the European Union, according to economists at the European Central Bank.

As a result of President Trump’s tariff hikes, many European businesses now face a duty of 15% when selling their products to U.S. customers. ECB economists estimate those higher tariffs will reduce exports and lower the eurozone’s gross domestic product by 0.7 percentage point through 2027.

However, in a paper published Wednesday, ECB economists said those losses could be recouped if eurozone members lowered barriers to trade in goods and services within the currency area.

“A modest reduction in single-market barriers could compensate the likely trade losses from higher U.S. tariffs,” they wrote in the central bank’s economic bulletin, which is published eight times a year.

Although some goods and services can be sold across the EU subject to shared regulations, many businesses face costly efforts to comply with diverse national rules when they operate outside their home country.

The ECB’s economists estimate that those costs are equivalent to a tariff of 67% on goods sold outside the manufacturer’s home country, and a tariff of 95% on services.

They estimated that reducing those costs by two percentage points would generate a rise in output that matches the losses suffered due to higher U.S. duties.

Higher U.S. tariffs aren’t the only challenge for European exporters, who also face more intense competition from Chinese businesses in overseas markets. In response, European policy makers have advocated an inward turn to boost growth, focusing on eliminating barriers between members.

“The only viable path forward is to sustain our European values and promote stronger cooperation and deeper integration within Europe,” ECB Vice President Luis de Guindos said Wednesday in a separate speech.

However, progress has been slow. The ECB’s economists said it would take some time for lower barriers to raise output.

“This would be unlikely to substitute for lost U.S. trade immediately, as any structural adjustments within the single market would take time to materialize,” they wrote. “Sustained regulatory, administrative and enforcement efforts would be required.”

Source: MSN

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