U.S. Trade Policy and Euro Area Bank Lending
We study how the 2025 shift in U.S. trade policy reached euro area firms through their banks. Using the euro area credit register, we measure banks’ exposure through their borrowers’ dependence on U.S. trade and compare lending by more and less exposed banks to the same firm. After the April 2025 tariff announcement, a one-standard-deviation more exposed bank reduced credit supply by 1.9 percent relative to the firm’s other lenders. The contraction appeared immediately and persisted through the end of 2025. It was stronger at more exposed and at smaller banks, reached borrowers irrespective of their own sector’s exposure, and fell most heavily on the smallest firms. Banks’ portfolios thus transmit a foreign trade policy shock to domestic firms well beyond those directly exposed.
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