ECB’s Panetta: Tariffs Have Hit the US Hardest
ECB’s Panetta Assesses Tariff Burden — Context and Cross‑Border Nuance
European Central Bank official Fabio Panetta told audiences in Venice that recent U.S. tariffs have produced an uneven distribution of costs: a small share appears retained abroad, while a large portion lands on U.S. firms and households.
Panetta summarized the transmission as sequential: firms first squeezed margins to absorb duties; some of those higher costs were later passed on to buyers; and a measurable sliver — he estimated roughly 10% — remained with overseas suppliers.
He argued that consumers ultimately carry a substantial share of the burden — close to 50% through higher retail prices — producing what economists call tariff pass‑through and creating a simultaneous downside for growth and upside for inflation in the country imposing levies.
Panetta’s reading aligns with other empirical work showing large combined domestic incidence: a Federal Reserve Bank of New York study estimated that roughly 90% of the economic cost was borne by U.S. consumers and businesses over the first eleven months, and detailed state‑level tallies put exposure at about $199 billion through November 2025 concentrated in a handful of competitive midterm states.
At the same time, ECB economists’ structural modelling and trade‑data analysis point to an important counter‑vailing channel: for the euro area the net effect of U.S. duties has manifested largely as a contraction in external demand — feeding through to weaker domestic activity and, on aggregate, a net disinflationary impulse in Europe because lost exports and lower income outweigh immediate imported‑cost shocks.
These apparently conflicting findings are reconcilable once timing, geography and sectoral exposure are accounted for: near‑term incidence in the imposing country tends to show stronger pass‑through and margin compression, whereas trade‑dependent partner regions can experience demand losses that lower their price pressures — and the largest price impacts may emerge with a lag (studies point to a 1–2 year horizon) as inventories run down and exemptions or front‑loaded imports unwind.
Private and political buffers — negotiated exemptions and caps (including reported ceilings around 15% for many European goods), front‑loading, inventory build‑ups, rerouted sourcing, and firms temporarily absorbing duties — have muted headline pass‑through so far, but several authors warn these cushions are not permanent.
Sectoral heterogeneity is pronounced: machinery, autos and chemicals appear both heavily exposed and more responsive to changes in borrowing costs, meaning monetary policy can differently affect recovery in those areas. Small manufacturers, specialized suppliers and some agricultural exporters report sharper margin pressure, constrained hiring and delayed investment as working capital tightens.
For central banks the upshot is a complex trade‑off: in the U.S., tariff‑driven price rises and margin squeezes worsen the inflation‑growth dilemma; in the euro area, lost external demand may temporarily suppress inflation, complicating the ECB’s reaction function — and any offsetting loosening risks costs to financial stability and firm profitability.
Politically, concentrated state‑level exposure and the mismatch between public claims that exporters would pay and measured domestic incidence heighten electoral and fiscal stakes in midterm battlegrounds.
In sum, Panetta’s intervention reframes tariffs not simply as an external diplomatic lever but as a policy whose real economic incidence is time‑ and place‑dependent: large near‑term domestic burdens, heterogeneous sectoral effects, and a looming risk that muted short‑run pass‑through will intensify as buffers fade — with implications for growth, inflation and monetary strategy across advanced economies.
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