ECB's warning: 'Without an agreement on tariffs, 1% of GDP at risk'

Trump's tariffs threaten a 1% loss of economic growth in Europe in the three-year period 2025-2027 if an agreement is not reached with Washington by July 9. But even with the current US tariffs, frozen at 10% pending negotiations, the damage is done: uncertainty and lower exports will take away 0.7% of GDP. And in the event of a US trade war with the EU and China there is a further risk: the diversion of Chinese exports towards Europe could "amplify downward pressure" on inflation. Putting the ECB in front of a 'disinflationary' scenario and the need to bring rates well below the current 2%.

The scenarios in the ECB's June 'staff projections' speak for themselves: ECB economists have confirmed euro area growth at 0.9% for this year, then 1.1% and 1.3% in the following two years, based on the current 'frozen' duties. This is the baseline scenario, but it is destined to worsen significantly in the "severe" scenario, if there is no agreement and duties return to the levels - which the ECB estimates at 28% - announced on Trump's 'Liberation Day' on April 2. Even worse damage for the US and China: the American economy would erase 0.7 percentage points of its growth in 2026 alone with a half percentage point spike in inflation in 2025 and 2026 that would tie the Fed's hands in cutting rates. There is also a positive scenario: that of the "removal of unilateral duties" between the US and the EU, the 'zero to zero' hypothesis with "rapid reduction of trade uncertainties to pre-2018 levels".

Growth for the euro area would be stronger by 0.3 or 0.4 percentage points in 2025-2026 compared to the baseline scenario. The ECB does not say it, but it is a scenario that would be equivalent to a U-turn by Trump on his political program. Numbers that make the July 9 deadline appear to be a decisive date. Even more so for Italy and Germany, Europe's two large industrial exporters: the latter, according to the Bundesbank, at risk of a prolonged recession. The former of a further worsening of GDP compared to current forecasts, already cut to 0.6% for this year, most recently by Istat. "We need to negotiate immediately, because the only big problem for industrial companies is uncertainty," says the president of Confindustria Emanuele Orsini. "The biggest concern is the repercussions that we could have from US tariffs, because they could further lower that 0.6%, and this is a problem for us."

Whether Trump will behave like 'Taco' - a nickname given to him by the Financial Times for his tendency to capitulate noisily after the initial resounding threats - or whether the 'hawks' of his administration will prevail given the bellicose tone towards the European ally, will also be played on what the EU offers: among the hypotheses mentioned by Orsini, purchases for 80% of defense investments from the US and more gas imports, in addition to the "deal on big tech". What is certain is that the damage of the protectionist offensive and economic nationalism is already visible and is heavy. Already today - writes the ECB - "euro area exports have been significantly worsened due to US tariffs, uncertainty over trade policies and the appreciation of the euro" which has been accompanied by the crisis of confidence in the greenback." The net trade balance "will make a negative contribution" to growth equal to -0.6 points of GDP in 2025 and 0.1 points in 2026, before a "weakly positive contribution" the following year. And that's not all: between uncertainty about the direction of global trade, effective tariffs and market volatility, "business investment is expected to contract slightly in the first quarter of 2025." Growth is expected to slow in the second and third quarters of 2025 after the surprising +0.6% in the first.