Europe’s economic resilience has become the talk of financial circles this autumn, as the region weathers the latest round of U.S. tariffs with more poise than many experts predicted. On September 30, 2025, Christine Lagarde, the president of the European Central Bank (ECB), addressed a gathering of central bankers in Helsinki, Finland, and offered a measured but optimistic assessment: "A year ago, most would have assumed that U.S. tariffs... would trigger a major adverse shock to the euro area economy. Yet some of these assumptions have not been borne out."
According to both ABC and Business Wire, the European economy’s ability to withstand the pressure of President Donald Trump’s new tariffs is, in part, thanks to the European Union’s decision not to respond in kind. Instead of launching a tit-for-tat tariff war, the EU chose a path of restraint, suspending plans for retaliatory tariffs after a July 2025 deal between President Trump and European Commission President Ursula von der Leyen capped tariffs at 15%. This move, Lagarde explained, helped avoid the kind of escalating trade conflict that could have seriously damaged both sides.
“The impact of Trump’s trade war on growth and inflation in the 20 countries that use the euro currency had also been softened by a stronger euro and by conclusion of a trade deal with Trump,” Lagarde told the conference. The deal not only set a limit on tariffs but also removed a layer of uncertainty that had been threatening to delay or disrupt business investment across the continent. With this agreement, European businesses could breathe a bit easier, knowing that the threat of sudden, punitive tariffs had receded—at least for now.
It’s not just the absence of new tariffs that’s helped Europe stay afloat. The euro itself has played a starring role in the drama. As the dollar fell in the wake of Trump’s trade policies, the euro gained strength, making imports cheaper for European companies and consumers. This shift has been a boon for the European Central Bank, which has struggled in recent years to keep inflation in check. In August 2025, inflation in the euro area clocked in at a moderate 2%, a figure that suggests the ECB’s balancing act is working—at least for the moment.
But that’s not the whole story. European governments have also stepped up with a range of pro-growth measures designed to buffer the economy from external shocks. These include new free trade agreements with the Mercosur bloc—Argentina, Brazil, Bolivia, Paraguay, and Uruguay—as well as with Mexico. National governments, wary of a resurgent and aggressive Russia, have ramped up defense spending. Germany, often criticized for its frugal approach to public investment, has committed to large-scale spending on roads, rails, and bridges after years of underfunding its infrastructure.
Lagarde noted that the EU’s executive commission had prepared a list of goods to hit with retaliatory tariffs, or import taxes, but ultimately suspended these plans once the July deal was struck. The reasons for this restraint were twofold: pressure from business groups who feared a prolonged cycle of tariff increases, and concerns about jeopardizing U.S. support for Ukraine. As a result, Europe continued to receive the imported raw materials and goods it needs, without the added cost or supply chain headaches that higher tariffs can bring.
“As a result, we have not yet seen significant supply chain disruption,” Lagarde said. “Global supply chain pressures remain contained, and in the euro area, bottleneck indicators are close to historical averages.” This is no small feat, given the global disruptions that have rattled markets in recent years—from the pandemic to wars and energy crises.
Still, the picture isn’t entirely rosy. Growth in the euro area remains anemic, with the region posting just 0.1% growth in the second quarter of 2025 compared to the previous quarter. That’s hardly the stuff of economic miracles. And while the immediate shock of new tariffs has been blunted, Lagarde and other officials caution that tariffs and the uncertainty they breed are expected to shave about 0.7 percentage points off growth through 2025 to 2027. That’s a significant drag, especially for an economy already struggling to regain its pre-pandemic momentum.
So, how did Europe pull off this balancing act? According to ABC, much of the credit goes to the decision not to retaliate. By resisting the urge to hit back with self-defeating tariffs, the EU avoided a downward spiral that could have hurt European consumers and businesses just as much as their American counterparts. Business groups, in particular, lobbied hard against retaliation, warning that a trade war would only compound the region’s economic challenges.
Of course, the calculus wasn’t purely economic. As Business Wire reported, European policymakers were also mindful of the broader geopolitical stakes—especially the need to maintain U.S. support for Ukraine in the face of ongoing Russian aggression. In this context, picking a fight with Washington over tariffs seemed like a risky move that could have undermined crucial transatlantic cooperation.
Meanwhile, the ECB has kept a close eye on inflation, which remains a key concern for both policymakers and ordinary Europeans. The stronger euro has helped keep import prices in check, but the specter of higher tariffs—and the potential for supply chain disruptions—means that vigilance is still the order of the day. Lagarde’s message in Helsinki was clear: while the worst-case scenarios have not materialized, the risks haven’t gone away entirely.
Looking ahead, the EU’s strategy of restraint and proactive economic management will be put to the test as the global environment remains volatile. Trade tensions could flare up again, and the region’s modest growth leaves little room for error. Still, Europe’s response so far offers a case study in the benefits of patience, pragmatism, and a willingness to prioritize long-term stability over short-term political point-scoring.
For now, Europe’s leaders can take some comfort in having avoided the worst. As Lagarde summed up, "There had been little impact on inflation, and effects on growth have been relatively moderate due to European governments taking pro-growth measures in response." Whether this approach will continue to pay dividends in the years ahead remains to be seen, but for the moment, Europe’s calm in the face of transatlantic turbulence stands as a testament to the power of restraint and smart economic policy.
