A stronger euro and sluggish productivity growth are making it harder for Eurozone exporters to compete in the U.S. market, creating problems that Oxford Economics says could outweigh the impacts seen from Trump administration tariffs.

According to a May 28 report, the euro has appreciated roughly 10% against the U.S. dollar since January, making many European exports prohibitively expensive for U.S. buyers. This is while European productivity growth has continued to lag behind the U.S., putting added pressure on exporters already grappling with weaker global demand and trade uncertainty. Oxford Economics warned that those challenges could further weaken the Eurozone’s manufacturing sector, which has already struggled for years with soft industrial output and declining export orders. 

Oxford Economics noted that there's little EU policymakers can do to address many of the factors impacting the bloc's competitiveness, given that tariff rates are a decision for the U.S. government, and taking steps to weaken the euro would risk fueling inflation and financial instability across Europe.

"That leaves boosting productivity growth as the primary lever for EU policymakers to improve exporters' external competitiveness," the report reads. However, European leaders have spent years proposing reforms with that exact goal, and there has been little meaningful implementation so far, Oxford Economics added.

The report further warned that Europe is facing mounting competitive pressure from China and other export-driven economies with weaker currencies, which help make their exports more attractive globally compared to the EU's. Moving forward, the EU is expected to respond by relying more on protective trade measures and industrial policies aimed at shielding domestic industries from external competition.