ECB Incorporates 10% US Tariff, But No EU Retaliation for Baseline Scenario in June Projections

5 June 2025

By Marta Vilar – FRANKFURT (Econostream) – In its June macroeconomic projections, the ECB’s baseline scenario includes the assumption of a 10% U.S. tariff on all countries, including the EU, but does not factor in any retaliatory measures from Europe.

‘The baseline assumes that US tariffs on goods imports are higher than in the March 2025 projections’, according to the report on the June projections, released Thursday.

An increase in tariffs from 0% to 10% in US goods imports is assumed for all countries, except China, for which an effective tariff rate of approximately 40% is incorporated, the document said.

‘Additionally, it is assumed that the EU does not retaliate, while China retaliates symmetrically’, the ECB said.

The ECB also published two alternative scenarios with respect to tariffs: a ‘mild’ and a ‘severe’ scenario.

‘The mild scenario assumes that as of the third quarter of 2025 the EU and the United States would reach a deal on eliminating bilateral tariffs’, the document said, that is zero-for-zero tariffs.

Regarding China, it assumes the US would reduce its tariffs further, while China would eliminate all its retaliatory tariffs against the US.

Under this scenario, euro area GDP growth is projected to rise to 1.5% in 2026 and 1.4% in 2027, compared to 1.1% and 1.3%, respectively, in the baseline. Inflation is expected to ease to 1.7% in 2026 before picking up to 2.1% in 2027, outperforming the baseline projections.

‘The severe scenario assumes that US tariffs would return to the elevated levels announced on 2 April and that the EU would retaliate by imposing tariffs on imports of US goods’, the ECB said.

In such scenario, US tariffs against China would stay at the 120% level announced before the pause of May 12.

In this case, euro area growth would slow to 0.7% in 2026 and 1.1% in 2027, while inflation would fall to 1.5% in 2026 and 1.8% in 2027.