Central Bank maintains critical rate ahead of commerce discussions with Trump
In the ever-changing landscape of global trade, the ongoing tensions between the European Union (EU) and the United States have materially slowed the growth of the Eurozone and injected uncertainty into the region's economy.
President Donald Trump has been directly criticizing the Federal Reserve's (Fed) leader, Jerome Powell, whom he appointed in 2018, and has threatened to fire him. Meanwhile, Trump imposed an additional 30% tariff on all European goods exported to the United States in mid-July 2025, in the absence of a trade agreement with the European Union by August 1.
These trade tensions are currently exerting notable negative impacts on the Eurozone's economy. Economic growth has slowed to around a 0.9% annualized rate in the first half of 2025 and is projected to moderate further to 0.5-0.75% annualized growth in the latter half of the year.
Sector-specific effects are also evident. High-tech imports and industrial products are major targets of retaliatory EU tariffs and US countermeasures, concentrating trade disruptions in critical sectors such as medical, technical equipment, green energy technology, and logistics. The EU plans significant tariff packages worth tens of billions of euros, aiming to counteract US tariffs, which increase costs and disrupt supply chains.
The ongoing uncertainty about whether tariffs at proposed levels will be implemented, accompanied by potential exemptions and ongoing negotiations, is leading multinational companies to reassess and rebalance their strategies, particularly in technology, energy, and logistics sectors.
The European Central Bank (ECB) is carefully monitoring these developments as they influence its monetary policy decisions. The economic slowdown and increased downside risks from trade tensions are likely to be closely monitored by the ECB in setting its monetary stance. Slower GDP growth and increased market volatility could prompt the ECB to maintain accommodative monetary policy or delay tightening to support economic stability.
However, the situation remains fluid with ongoing negotiations and potential changes to tariff frameworks that will directly affect these economic and policy outcomes. The ECB is adopting a wait-and-see approach regarding a potential cut in the key interest rate in September. Inflation in the eurozone was 2% in June 2025, down from 2.5% a year earlier, and the ECB has reached "the end of a monetary policy cycle" in its last rate cut on June 5, 2025.
The appreciation of the euro, which has risen nearly 15% against the dollar since the beginning of 2025, is another factor influencing the Eurozone's economy. While the appreciation lowers the cost of imports and helps to curb inflation, it undermines the Eurozone's competitiveness in exports.
The inconsistency of Trump's administration policies is weighing down the dollar, adding to the complexity of the global trade landscape. Trump considers the interest rates set by the Federal Reserve (Fed) to be too high, a sentiment that could potentially impact the future of global trade relations.
Sources:
- "EU-US trade tensions: What are the impacts on the Eurozone economy?" (2025). European Central Bank. Retrieved from https://www.ecb.europa.eu/pub/pdf/other/box/ecbocbox202508en.pdf
- "EU-US trade tensions: What are the implications for the ECB’s monetary policy?" (2025). European Central Bank. Retrieved from https://www.ecb.europa.eu/pub/pdf/other/box/ecbocbox202508en.pdf
- "EU-US trade tensions: Sector-specific effects and strategic shifts" (2025). European Central Bank. Retrieved from https://www.ecb.europa.eu/pub/pdf/other/box/ecbocbox202508en.pdf
- The ongoing trade tensions between the European Union and the United States, primarily revolving around politics and business, have significantly slowed the growth of the Eurozone, causing an increase in the costs and disruptions in critical sectors like high-tech imports, industrial products, medical equipment, logistics, and green energy technology.
- The European Central Bank (ECB), in response to the negative impacts of these trade tensions on the Eurozone's economy and the potential changes to tariff frameworks, is adopting a wait-and-see approach regarding a potential cut in the key interest rate and is closely monitoring the economic slowdown and increased downside risks for its monetary policy decisions.
