U.S. tariffs pose a 'real challenge' to Europe, Barclays CEO says

Washington's protectionist trade policies are posing a "real challenge" to European nations as they seek to raise their security contributions, according to Barclays CEO C. S. Venkatakrishnan.

"I think Europe has a real challenge in adjusting to tariffs. It's got to find space, fiscal space, to increase defense spending, and it's got to look at consolidation in financial institutions, in within its market," the executive told CNBC's Steve Sedgwick on Thursday.

The European Union currently faces a 25% U.S. import tariff on its steel, aluminum and cars and was in April struck with an additional 20% "reciprocal" levy under the White House's fresh wide-spanning trade policies. The latter duty has been temporarily reduced to 10% during a 90-day reprieve that expires in July, paving the way for Washington and the 27-member European bloc to join the negotiations table for a more favorable trade agreement.

A deal has yet to be struck, with markets mired in uncertainty and with concerns mounting over the EU's economic growth outlook and potential inflationary and recessionary risks in the world's largest economy. The trade developments affecting the two historically allied nations have cast a shadow on the EU's efforts to overhaul its fiscal policies and galvanize defense spending under the bloc's "ReArm Europe Plan."

The volatility has encumbered companies that seek to understand the impact of tariffs and regulation on their business model, Barclays' Venkatakrishnan said.

"You can look at the companies that have withdrawn earnings guidance over the year, and those are the industries that are more deeply affected. And there, they might decide — not now, but over time — that there needs to be further consolidation or further rewiring of their business models," he said. "And then activity will increase, and we can help them. And then there are others who are ... taking advantage of the relative calm to continue to expand their businesses."

British bank Barclays has had a notable presence stateside since absorbing the investment banking and capital markets businesses of collapsed Wall Street titan Lehman Brothers for $1.75 billion. The lender is navigating calmer seas at home, after Trump unveiled the broad outline of a U.S.-U.K. trade deal earlier this month and Britain scored another major win earlier this week through an agreement to reset its relationship with the EU after departing the bloc in 2020.

Still, U.K. Prime Minister Keir Starmer's Labour administration must battle the dragon of surging inflation and public skepticism over Finance Minister Rachel Reeves' planned tax increases.

A vocal Reeves supporter, Venkatakrishnan on Thursday said the current government remains "absolutely" on track with its economic steps and outlined the hurdles before the British economy:

"We're not seeing consumer distress. We're in fact, seeing conduit continued consumer strength, but it's coming because of people managing their balances and their finances prudently. So economizing. The job market is still strong," he said.

"But, as you see, even in the last couple of days, people are worried about inflation. People are worried about cost, whether it's winter fuel bills or whether it's more generalized inflation from tariffs, and the only real answer to that is growth."