The National Bank of Denmark published an analysis of remaining barriers inside the European Union single market, finding that reducing internal trade frictions could substantially increase Danish welfare and, in some scenarios, mitigate the welfare losses associated with global trade fragmentation. The paper highlights Denmark’s reliance on the single market, with around 42 per cent of Danish exports of goods and services going to other EU member states (DKK 869 billion in 2024). Using a structural gravity model, it estimates that, in 2020, cross-border trade costs within the EU corresponded on average to an ad valorem equivalent of around 50 per cent for goods and almost 110 per cent for services (excluding non-traded public services), driven largely by national requirements and divergent implementation and enforcement of EU rules. Scenario calculations using a general equilibrium trade model indicate that a 1 percentage point reduction in EU internal trade barriers increases Danish welfare (gross national income) by about 0.4 per cent in the long run, and that bringing barriers down to levels similar to trade between Canadian provinces could raise Danish welfare by almost 3 per cent. In combined scenarios using US tariffs in effect as of 7 August 2025, including a general 15 per cent tariff on EU goods and sector-specific tariffs on selected products, the analysis estimates that a 2 percentage point reduction in EU internal barriers would offset Denmark’s welfare loss from higher US tariffs, while larger reductions could also neutralise or outweigh the impact of a severe two-bloc fragmentation scenario, with long-run equilibria reached after at least six years.
National Bank of Denmark 2025-08-26
National Bank of Denmark analysis estimates large EU single market trade barriers and projects up to 3 per cent Danish welfare gain from deeper integration
The National Bank of Denmark's analysis highlights significant internal trade barriers within the EU single market, suggesting that reducing these could enhance Danish welfare. A 1 percentage point reduction in EU trade barriers might increase Denmark's gross national income by 0.4% long-term, with potential welfare gains of nearly 3% if barriers match Canadian interprovincial trade levels. A 2 percentage point reduction could offset welfare losses from increased US tariffs, with larger reductions potentially mitigating severe global trade fragmentation impacts.