Research

How do US import tariffs affect the euro area, whether as a direct target or as a third country? This policy brief draws on a suite of five models used at the ECB to disentangle the main transmission channels. In harmonised, stylised scenarios, tariffs on euro area goods sharply reduce bilateral trade but have much smaller effects on aggregate euro area GDP. The moderate aggregate effects conceal sizeable losses in exposed manufacturing industries. Tariffs on Chinese goods provide little aggregate benefit to euro area production, as export opportunities are offset by weaker world demand and stronger import competition. Production network linkages and substitution possibilities determine where losses concentrate. Retaliation does not necessarily reduce output losses. Overall, the results highlight the value of monitoring sectoral vulnerabilities and carefully assessing market diversification and deeper trade integration as alternatives to escalation.

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Not all energy shocks are alike. This column uses a multi-country, multi-sector DSGE model with production networks and trade linkages to compare a Europe-centric regional energy shock — akin to the 2022 Russian gas crisis — with a broader global energy shock like the current Strait of Hormuz disruption. The global shock worsens the EU's terms of trade more severely and triggers exchange rate depreciation rather than the appreciation seen under a regional shock. Crucially, while the regional shock still allows firms and consumers to substitute towards cheaper foreign goods and inputs, the global shock closes off this escape route — amplifying both the GDP contraction and the indirect inflationary effects through global supply chains.

Coverage: Dinner remarks by ECB Executive Board Member P. R. Lane at the Centre for European Reform (May 2026); FINANCIAL TIMES, Chris Giles on Central Banks newsletter, 19 May 2026; Prometeia Insights (Jul. 2026).

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China’s industrial rise is a key external force influencing euro area trade, production and prices by reducing costs for euro area companies, via intermediate inputs, and increasing competitive pressures in European and global markets. Econometric analysis shows that the increase in the exposure of the euro area to intermediate goods imports from China has been positively associated with industrial production growth, whereas the increase in imports of final goods from China has tended to weigh on production. Model-based simulations can capture the increase in competitive pressures from China via sector-specific productivity shocks. The simulations suggest that, at the aggregate level, EU GDP increases in the short term, driven by positive income effects owing to cheaper imported goods and by reduced production costs resulting from cheaper imported inputs, while inflation declines.

Coverage: LA STAMPA, 11 May 2026; IL FOGLIO, 13 May 2026; FINANCIAL TIMES, 11 Oct. 2026.

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The ECB Consumer Expectations Survey shows that in the euro area there is significant heterogeneity between the employed and the unemployed in the share of consumption devoted to energy-intensive goods. Starting from this evidence, this column discusses the optimal conduct of monetary policy in response to a marked increase in energy prices through the lens of a heterogeneous-agent model with frictions in the labour market, in which the share of energy-intensive consumption is higher for the unemployed. When energy prices increase, the jobless reduce their consumption more than the employed; it follows that, in the face of energy shocks, an increase in the share of people without a job would imply a marked worsening of aggregate welfare. Therefore, the optimal monetary policy must be partially accommodative towards inflation so as to contain the rise in the unemployment rate.